Answer:
1. a. $560,000
b. $13,400,000
c. $7,700,000
Explanation:
The computation of the depreciation expense and the year end book value for the first year is shown below:
a) Straight-line method:
= (Purchase value of airplane - residual value) ÷ (useful life)
= ($33,500,000 - $5,500,000) ÷ (5 years)
= ($28,000,000) ÷ (5 years)
= $560,000
In this, the depreciation expense 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:
= Percentage ÷ useful life
= 100 ÷ 5
= 20%
Now the rate is double So, 40%
In year 1, the original cost is $33,500,000, so the depreciation is $13,400,000 after applying the 40% depreciation rate
(c) Units-of-production method:
= (Purchase value of airplane - residual value) ÷ (estimated miles)
= ($33,500,000 - $5,500,000) ÷ ($4,000,000 miles)
= ($28,000,000) ÷ ($4,000,000 miles)
= $7 per miles
Now for the first year, it would be
= Expected miles in first year × depreciation per miles
= 1,100,000 miles × $7 per miles
= $7,700,000
Now the book value would be
Straight-line method:
= Acquired value of a plain - accumulated depreciation
= $33,500,000 - $560,000
= $32,940,000
Double-declining balance method:
= Acquired value of a plain - accumulated depreciation
= $33,500,000 - $13,400,000
= $20,100,000
Units-of-production method:
= Acquired value of a plain - accumulated depreciation
= $33,500,000 - $7,700,000
= $25,800,000
