Question

On January 1, 2020, Quick Travel Transportation Company purchased a used aircraft at a cost of $52,300,000. Quick Travel expects the plane to remain useful for five years (6,800,000 miles) and to have a residual value of $4,300,000. Quick Travel expects to fly the plane 800,000 miles the first year, 1,275,000 miles each year during the second, third, and fourth years, and 2,175,000 miles the last year. Read the requirements. 1. Compute Quick Travel's depreciation for the first two years on the plane using the straight-line method, the units-of-production method, and the double-declining balance method. a. Straight-line method Using the straight-line method, depreciation is for 2020 and for 2021. Requirements 1. Compute Quick Travel's depreciation for the first two years on the plane using the following methods: a. Straight-line method. b. Units-of-production method (round depreciation per mile to the closest cent) c. Double-declining-balance method 2. Show the airplane's book value at the end of the first year under each depreciation method. Print Done Help me solve this Etext pages Get more help. (?)

Answer 1

a. Straight-line method:

Annual depreciation = (Cost - Residual Value) / Useful life

Annual depreciation = ($52,300,000 - $4,300,000) / 5 = $9,800,000

Depreciation for 2020 = $9,800,000

Depreciation for 2021 = $9,800,000

b. Units-of-production method:

Depreciation per mile = (Cost - Residual Value) / Total miles expected to be flown

Depreciation per mile = ($52,300,000 - $4,300,000) / 6,800,000 = $7.35

Depreciation for 2020 = $7.35 x 800,000 = $5,880,000

Depreciation for 2021 = $7.35 x 1,275,000 = $9,376,250

c. Double-declining balance method:

Depreciation rate = 2 / Useful life = 2 / 5 = 40%

Depreciation for 2020 = $52,300,000 x 40% = $20,920,000

Depreciation for 2021 = ($52,300,000 - $20,920,000) x 40% = $12,552,000

2. Book value at the end of the first year:

Straight-line method: $52,300,000 - $9,800,000 = $42,500,000

Units-of-production method: $52,300,000 - $5,880,000 = $46,420,000

Double-declining balance method: $52,300,000 - $20,920,000 = $31,380,000