Question

S7-5 (similar to) :3 Question Help On January 1, 2017, Alaska Freight Transportation Company purchased a used aircraft at a cost of $64,400,000. Alaska Freight expects the plane to remain useful for five years (6,500,000 miles) and to have a residual value of $6,400,000. Alaska Freight expects to fly the plane 835,000 miles the first year, 1,275,000 miles each year during the second, third, and fourth years, and 1,840,000 miles the last year. Read the requirements. 1. Compute Alaska Freight's depreciation for the first two years on the plane using the straight-line method, the units-of-production method, and the double-declining balance method. a. Straight-line method Using the straight-line method, depreciation is $ for 2017 and for 2018. X i Requirements 1. Compute Alaska Freight's depreciation for the first two years on the plane using the following methods: a. Straight-line method b. Units-of-production method (round depreciation per mile to the closest cent) c. Double-declining-balance method 2. Show the airplane's book value at the end of the first year under each depreciation method. Print Print Done Done Enter any number in the edit fields and 5 parts Cloor All back Anwar

Answer 1

a. Less Straight line Method Annual Depreciation Expense Asset Value $ 64,400,000 Salvage Value $ 6,400,000 Depreciation cost $ 58,000,000 Useful Life Depreciation exp per year $ 11,600,000 Divide Using straight line method, Depreciation expense remains same through out life of asset. Depreciation is $ 11,600,000 for 2017 and $11,600,000 for 2018 b. Less Unit of production method Depreciation Expense Asset Value $ 64,400,000 Salvage Value $ 6,400,000 Depreciable Value 58000000 Useful Life (miles) 6500000 Depriciation per mile $ 8.92 Divide Multiply Miles driven in 2017 Depriciation per mile Depreciation Exp of 2017 $ $ 835000 8.92 7,448,200 Multiply Miles driven in 2018 Depriciation per mile Depreciation Exp of 2018 $ $ 1275000 8.92 11,373,000 Double Declining Depreciation Rate 2 x (100% / useful life) = 2 x (100 % / 5)= 40% Depreciation Exp = Book value x depreciation rate Depreciation exp 2017 = 64400000 x 40% = $ 25,760,000 Book value of 2018 = Book vale of 2017 - Depreciation of 2017 = 64,400,000 - 25,760,000= $ 38,640,000 Depreciation exp 2018 = 38,640,000 x 40% = $ 15,456,000 (A) (B) (A-B) Method Asset Value Depriciation expense Ending Book Value Straight line Method $ 64,400,000 $ 11,600,000 $52,800,000 Unit of production method $ 64,400,000 $ 7,448,200 $56,951,800 Double Declining $ 64,400,000 $ 25,760,000 $38,640,000