Question

On January 1, 2017, Best Shipping Transportation Company purchased a used aircraft at a cost of $46,300,000. Best Shippin Best Shipping expects to fly the plane 835,000 miles the first year, 1,225,000 miles each year during the second, third, and fou Read the requirements. 1. Compute Best Shipping's depreciation for the first two years on the plane using the straight-line method, the units-of-produa a. Straight-line method Using the straight-line method, depreciation is $ for 2017 and $ for 2018 b. Units-of-production method (Round the depreciation per unit of output to two decimal places to compute your final answers Using the units-of-production method, depreciation is $ for 2017 and $ for 2018. c. Double-declining balance method Using the double-declining-balance method, depreciation is for 2017 and for 2018. 2. Show the airplane's book value at the end of the first year under each method. Units-of- Production Book Value: Double-Declining Balance Straight-Line Less: Book Value

Answer 1

Answer to Part 1-a:
Straight Line method:
Straight Line Depreciation per year = (Cost – Residual Value) / Useful Life
Straight Line Depreciation per year = ($46,300,000 - $4,300,000) / 5
Straight Line Depreciation per year = $42,000,000 / 5
Straight Line Depreciation per year = $8,400,000

Using the Straight-line method, depreciation is $8,400,000 for 2017 and $8,400,000 for 2018.

Answer to Part 1-b:
Units-of Production method:
Depreciation Expense per mile = (Cost – Residual Value) / Estimated miles driven
Depreciation Expense per mile = ($46,300,000 - $4,300,000) / 6,000,000
Depreciation Expense per mile = $7

Depreciation Expense per year = Depreciation Expense per mile * Miles driven

Depreciation Expense for 2017 = $7 * 835,000
Depreciation Expense for 2017 = $5,845,000

Depreciation Expense for 2018 = $7 * 1,225,000
Depreciation Expense for 2018 = $8,575,000

Using the units-of-production method, depreciation is $5,845,000 for 2017 and $8,575,000 for 2018.

Answer to Part 1-c:
Double-declining balance method:
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1/5 = 20%

Double Declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Double Declining Depreciation Rate = 2 * 20% = 40%

Depreciation Expense for 2017 = $46,300,000 * 40%
Depreciation Expense for 2017 = $18,520,000

Depreciation Expense for 2018 = ($46,300,000 - $18,520,000) * 40%
Depreciation Expense for 2018 = $11,112,000

Using the double-declining balance method, depreciation is $18,520,000 for 2017 and $11,112,000 for 2018.

Answer to Part 2:

Book Value: Cost Less: Accumulated Depreciation Book Value Straight-Line 46,300,000 8,400,000 37,900,000 Units-of- Production 46,300,000 5,845,000 40,455,000 Double-Declining Balance 46,300,000 18,520,000 27,780,000