Question

On January 1, 2018, Northeast Airlines purchased a used airplane for $46,500,000. Northeast Airlines expects the plane to remain useful for five years (6,000,000 miles) and to have a residual value of $4,500,000. The company expects the plane to be flown 1,500,000 miles 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 Requirements 1. Compute Northeast Airlines's first-year depreciation expense on the plane using the following methods : a. Straight-line b. Units-of-production c. Double-declining-balance 2. Show the airplane's book value at the end of the first year for all three methods Print Done Choose from any drop-down list and then click Check Answer. parts remaining Clear All Check Answer

Answer 1

Req. 1a

Straight Line Method = (Purchase Value - Residual Value)/ Number of Useful Years

=($ 46,500,000-$ 4,500,000)/5

=$ 42,000,000/5

= $ 8,400,000

1.b Units of Production method of Depreciation  

Depreciation per mile =(Purchase Value - Residual Value)/ Total miles

=($ 46,500,000-$ 4,500,000)/ 6,000,000

=$ 42,000,000/6,000,000

=$ 7 per mile

Depreciation Expense= $ 7 *1,500,000 =$ 10,500,000

Double Declining Balance method =2*(Purchase Value - Residual Value)/ Number of Useful Years

=2* 20%

=40%

Year	Beginning book value	Depreciation %	Depreciation Expense	Closing Book Value
1	$                              46,500,000.00	40%	$               18,600,000.00	$                            27,900,000.00
2	$                              27,900,000.00	40%	$               11,160,000.00	$                            16,740,000.00
3	$                              16,740,000.00	40%	$                  6,696,000.00	$                            10,044,000.00

Req 2

Dereciation for Three Years Under:

Straight line method =3*8,400,000=25,200,000

Units Of Production Method =3*$ 10,500,000=$ 31,500,000

Book Value After 3 years under

Straight line method =$ 46,500,000- $ 25,200,000=$ 21,300,000

Units Of Production Method = $ 46,500,000- $ 31,500,000= 15,000,000

Double Declining Balance method

Year	Beginning book value	Depreciation %	Depreciation Expense	Closing Book Value
1	$                              46,500,000.00	40%	$               18,600,000.00	$                            27,900,000.00
2	$                              27,900,000.00	40%	$               11,160,000.00	$                            16,740,000.00
3	$                              16,740,000.00	40%	$                  6,696,000.00	$                            10,044,000.00