Question

At the beginning of 2016, Texas Aero purchased a used airplane at a cost of $53,500,000. Texas Aero expects the plane to remain useful for eight years (4.000.000 miles) and to have a residual value of $5,500,000. Texas Aero expects the plane to be flown 1.100,000 miles the first year and 1,500,000 miles the second year. Requirements 1. Compute second-year (2017) depreciation expense on the plane using the following methods a. Straight-line b. Units-of-production c. Double-declining-balance 2. Calculate the balanc. in Accumulated Depreciation at the end of the second year for all three methods ALCUNI VELIX ALTE J a 53,500,000 13.375.000 X 2x(178) = $ rance depreciation 10,031 250 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 - 2016 6000000 13375000 6000000 Depreciation Expense - 2017 18000000 10031250 12000000 23406250 Accumulated Depreciation ending balance

Answer 1

1) Under straight line method

Depreciation expense for 2017= (Original cost-Residual value)/Expected useful life

= ($53500000-5500000)/8= $6000000

Under Units-of-production method

Depreciation expense per mile= (Original cost-Residual value)/Expected miles

= ($53500000-5500000)/4000000= $12 per mile

Depreciation expense for 2017= Miles for the first year*Depreciation expense per mile

= 1500000*$12= $18000000

Under Double-declining-balance method

Depreciation expense for 2016= $53500000*2*(1/8)= $13375000

Depreciation expense for 2017

(	Cost	-	Accumulated depreciation	)	*	2*(1/Useful life)	=	Balance depreciation
(	$53500000	-	13375000	)	*	2*(1/8)	=	$10031250

2)

	Straight-Line	Units-of-Production	Double-declining-balance
Depreciation expense- 2016	$6000000	(1100000*$12)= $13200000	$13375000
Depreciation expense- 2017	6000000	18000000	10031250
Accumulated depreciation ending balance	$12000000	$31200000	$23406250