Question

If an airline were to increase the estimated useful life of its aircraft, then ______. (Check all that apply.)

depreciation expense will decrease
net income will increase

Answer 1

Increasing an aircraft's estimated useful life leads to a decrease in annual depreciation expense and an increase in net income, as the expense is spread over a longer period.

Step-by-step explanation:

If an airline were to increase the estimated useful life of its aircraft, then depreciation expense will decrease, and net income will increase because depreciation is a non-cash expense that is allocated over the useful life of an asset. By extending the useful life, the annual depreciation expense is spread out over more years, hence reducing the amount expensed each year. This in turn causes the net income to increase since there is a lower expense recorded on the income statement. This accounting change reflects on the financial statements of the airline but does not involve actual cash flow, hence it can impact the reported earnings without affecting the airline's cash reserves.