Question

Bombardier Jet At A Cost Of $40,000,000. Questor Expects The Plane To Remain Useful For Four Years (6,250,000 Miles) And To Have A Residual Value Of ​$5,500,000. Questor Expects The Plane To Be Flown 725,000 Miles The First Year.​ (Note: "Miles" Is The Unit Of Measure Used In The Airline​

On January​ 1, 2020​, Questor Air purchased a used Bombardier jet at a cost of $40,000,000. Questor expects the plane to remain useful for four years (6,250,000 miles) and to have a residual value of ​$5,500,000. Questor expects the plane to be flown 725,000 miles the first year.​ (Note: "Miles" is the unit of measure used in the airline​ industry.)
1. Compute Questor​'s ​first-year amortization on the jet using the following​ methods:
a. Straight line
b. UOP
c. DDB
2. Show the​ jet's book value at the end of the first year under the​ straight-line method.
1. Calculate the​ first-year amortization: ​(Round your final answer to the nearest whole​ dollar.)
a. Using the​ straight-line method, amortization is $?
Please show the proper way to do the work and the right answer. Thank you.

Answer 1

Calculation of first year amortization using straight line method is given below:Amortization = (Cost of asset - Residual value) / Useful life of assetFirstly, we need to find the useful life of the asset using miles. We have,Total miles the jet will remain useful = 6,250,000Total miles the jet will fly in first year = 725,000Therefore, useful life of jet in years= Total miles the jet will remain useful / Total miles the jet will fly in first year= 6,250,000 / 725,000= 8.62 yearsNow, we can calculate the first year amortization using straight line method:Amortization = (Cost of asset - Residual value) / Useful life of assetAmortization = ($40,000,000 - $5,500,000) / 8.62 yearsAmortization = $3,604,182.51The first-year amortization on the jet using the straight-line method is $3,604,183.The book value of the asset at the end of the first year using the straight-line method will be:Book value of asset = Cost of asset - Accumulated amortizationBook value of asset at the end of the first year = Cost of asset - First year amortizationBook value of asset at the end of the first year = $40,000,000 - $3,604,183Book value of asset at the end of the first year = $36,395,817. Answer: $3,604,183 and $36,395,817