Answer:
1. a.$4,375,000
b. $7,500,000
c. $9,800,000
2. $8,750,000
$18,200,000
$17,500,000
Explanation:
1. The computation of the depreciation expense for the second year is presented below:
a) Straight-line method:
= (Purchase value of airplane - residual value) ÷ (useful life)
= ($40,000,000 - $5,000,000) ÷ (8 years)
= ($35,000,000) ÷ (8 years)
= $4,375,000
In this method, the depreciation is same for all the remaining useful life
(b) Double-declining balance method:
First we have to find the depreciation rate which is shown below:
= One ÷ useful life
= 1 ÷ 8
= 12.5%
Now the rate is double So, 25%
In year 1, the original cost is $40,000,000 so the depreciation is $10,000,000 after applying the 25% depreciation rate
And, in year 2, the $30,000,000 × 25% = $7,500,000
(c) Units-of-production method:
= (Purchase value of airplane - residual value) ÷ (estimated miles)
= ($40,000,000 - $5,000,000) ÷ ($5,000,000 miles)
= ($35,000,000) ÷ ($5,000,000 miles)
= $7 per miles
In first year, it would be
= Miles in first year × depreciation per miles
= 1,200,000 miles × $7
= $8,400,000
Now for the second year, it would be
= Miles in second year × depreciation per miles
= 1,400,000 miles × $7
= $9,800,000
2. The calculation of the accumulated depreciation balance would be
Straight line method:
= $4,375,000 + $4,375,000
= $8,750,000
Double-declining balance method:
= $10,000,000 + $7,500,000
= $17,500,000
Units-of-production method:
= $8,400,000 + $9,800,000
= $18,200,000
