Answer:
1. Compute Austin Airlines' first-year depreciation expense on the plane using the following methods:
a. Straight-line
depreciation expense for first year = ($33,500,000 - $5,500,000) / 5 = $5,600,000 per year
b. Units-of-production
depreciation per mile = ($33,500,000 - $5,500,000) / 4,000,000 = $7 per mile
depreciation expense for first year = $7 x 1,100,000 = $7,700,000
c. Double-declining-balance
depreciation expense for first year = 2 x 1/5 x $33,500,000 = $13,400,000
2. Show the airplane's book value at the end of the first year for all three methods.
a. Straight-line
book value at end of first year = $27,900,000
b. Units-of-production
book value at end of first year = $25,800,000
c. Double-declining-balance
book value at end of first year = $20,100,000
Explanation:
Purchase cost = $33,500,000
useful life of 5 years (or 4,000,000 miles) and residual value of $5,500,000
expected use during first year of 1,100,000 miles
