Question

Windsor, Inc. purchased a 777 aircraft on January 1, 2020 at a cost of $40,280,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $6,042,000.

Compute the accumulated depreciation and book value at December 31, 2022 using the straight-line method and the double-declining-balance method.

		Straight-line		Declining-balance
Accumulated depreciation		$enter a dollar amount		$enter a dollar amount
Book value		$enter a dollar amount		$enter a dollar amount

Answer 1

Straight-line method

Annual depreciation expense = (Cost of equipment - Residual value)/Useful life

= (40,280,000 - 6,042,000)/20

= 34,238,000/20

= $1,711,900

Accumulated depreciation for 3 years = Annual depreciation expense x 3

= 1,711,900 x 3

= $5,135,700

Book value of equipment at December 31, 2022 = Cost of equipment - Accumulated depreciation for 3 years

= 40,280,000 - 5,135,700

= $35,144,300

Double-declining-balance method

Double declining depreciation rate = 2 x 1/Useful life

= 2 x 1/20

= 10%

Depreciation schedule

Year	Beginning value	Depreciation expense	Accumulated depreciation	Ending value
2020	40,280,000	40,280,000 x 10% = 4,028,000	4,028,000	40,280,000 - 4,028,000 = 36,252,000
2021	36,252,000	36,252,000 x 10% = 3,625,200	4,028,000 + 3,625,200 = 7,653,200	36,252,000 - 3,625,200 = 32,626,800
2022	32,626,800	32,626,800 x 10% = 3,262,680	7,653,200 + 3,262,680 = $10,915,880	3,262,680 - 3,262,680 = 29,364,120

		Straight-line		Declining-balance
Accumulated depreciation		$5,135,700		$10,915,880
Book value		$35,144,300		$29,364,120