At the beginning of 2013, Austin Airline purchased a used airplane at a cost of

Question

At the beginning of 2013, Austin Airline purchased a used airplane at a cost of $35,000,000. Austin Airline expects the plane to remain useful for eight years (4,000,000 miles) and to have a residual value of $7,000,000. Austin Airline expects the plane to be flown 1,300,000 miles the first year and 1,200,000 miles the second year Requirements 1. Compute second-year (2014) depreciation expense on the plane using the following methods: a. Straight-line b. Units-of-production c. Double-declining-balance 2. Calculate the balance in Accumulated Depreciation at the end of the second year for all three methods. 1,200,000 8,400,000 Requirement 1c. Compute second-year (2014) depreciation on the plane using the double-declining-balance method. Begin by selecting the formula to calculate the company's second-year depreciation on the plane using the double-declining-balance method. Then enter the amounts and calculate the depreciation for the second year Double-declining- - Accumulated depreciation x 2 x (1/Useful life) 2x (1/8) Cost 35,000,000 8,750,000 $ 6,562,500 Requirement 2. Calculate the balance in Accumulated Depreciation at the end of the second year for all three methods. Straight-Line Units-of-production Double-declining-balance Depreciation Expense 2013 Depreciation Expense 2014 Accumulated Depreciation ending balance 3,500,000 3,500,000 7,000,000 8,750,000 6,562,500 15,312,500 8,400,000

Explanation / Answer

Requirement 2

Straight line Unit of production Double declining balance Depreciation for 2013 3500000 9100000 8750000 Depreciation for 2014 3500000 8400000 6562500 Accumlated depreciation ending balance 7000000 17500000 15312500

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