Northeast Airlines' first-year depreciation expense on the plane using the straight-line method is $7,000,000. Using the units-of-production method, it is $11,200,000, and using the double-declining-balance method, it is $16,250,000.
To calculate Northeast Airlines' first-year depreciation expense on the plane using the straight-line method, we need to determine the annual depreciation amount.
The formula for straight-line depreciation:
Depreciation Expense = (Cost - Residual Value) / Useful Life
Cost of the plane = $32,500,000
Residual Value = $4,500,000
Useful Life = 4 years
Depreciation Expense = ($32,500,000 - $4,500,000) / 4 = $7,000,000
Therefore, Northeast Airlines' first-year depreciation expense using the straight-line method is $7,000,000.
To calculate Northeast Airlines' first-year depreciation expense on the plane using the units-of-production method, we need to determine the depreciation per unit and then multiply it by the actual usage in miles.
Depreciation per unit = (Cost - Residual Value) / Total Expected Usage
Total Expected Usage = 4,000,000 miles
Depreciation per unit = ($32,500,000 - $4,500,000) / 4,000,000 miles = $7.00 per mile
Actual usage in the first year = 1,600,000 miles
Depreciation Expense = Depreciation per unit x Actual Usage
Depreciation Expense = $7.00 per mile x 1,600,000 miles = $11,200,000
Therefore, Northeast Airlines' first-year depreciation expense using the units-of-production method is $11,200,000.
To calculate Northeast Airlines' first-year depreciation expense on the plane using the double-declining-balance method, we need to apply a predetermined depreciation rate to the beginning book value.
Depreciation rate = 2 / Useful Life = 2 / 4 = 0.50 or 50%
Depreciation Expense = Beginning Book Value x Depreciation Rate
Year 1:
Beginning Book Value = Cost of the plane = $32,500,000
Depreciation Expense = $32,500,000 x 0.50 = $16,250,000
Therefore, Northeast Airlines' first-year depreciation expense using the double-declining-balance method is $16,250,000.
Book Value at the End of the first year:
Straight-Line: Cost - Accumulated Depreciation
Straight-Line Book Value = $32,500,000 - $7,000,000 = $25,500,000
Units-of-Production: Cost - Accumulated Depreciation
Units-of-Production Book Value = $32,500,000 - $11,200,000 = $21,300,000
Double-Declining-Balance: Cost - Accumulated Depreciation
Double-Declining-Balance Book Value = $32,500,000 - $16,250,000 = $16,250,000
Complete question:
On January 1, 2024, Northeast Airlines purchased a used airplane for $32,500,000. Northeast Airlines expects the plane to remain useful for four years (4,000,000 miles) and to have a residual value of $4,500,000. The company expects the plane to be flown 1,600,00 miles during the first year. Read the requirements. Requirement 1a. Compute Northeast Airlines's first-year depreciation expense on the plane using the straight-line method. Begin by selecting the formula to calculate the company's first-year depreciation expense on the plane using the straight-line method. Then enter the amounts and calculate the depreciation for the first year. Straight-line depreciation ( Requirement 1b. Compute Northeast Airlines's first-year depreciation expense on the plane using the units-of-production method. Before calculating the first-year depreciation expense on the plane using the units-of-production method, calculate the depreciation expense per unit. Select the formula, then enter the amounts and calculate the depreciation per unit. ( Depreciation per unit Now, select the formula, enter the amounts, and calculate the company's first-year depreciation expense on the plane using the units-of-production method. Units-of-production depreciation Requirement 1c. Compute Northeast Airlines's first-year depreciation expense on the plane using the double-declining-balance method. Begin by selecting the formula to calculate the company's first-year depreciation expense on the plane using the double-declining-balance method. Then enter the amounts and calculate the depreciation expense for the first year. (Enter "O" for items with a zero value.) Double-declining- balance depreciation Requirement 2. Show the airplane's book value at the end of the first year for all three methods. Straight-Line Units-of-production Double-declining-balance Cost Less: Accumulated Depreciation Book Value