Question

Fly-by-Night is an international airline company. Its fleet includes Boeing 757s, 747s, 727s, Lockheed L-1011s, and McDonnell Douglas MD-83s, MD-80s, and DC-9s. Assume that Fly-by-Night made the following expenditures related to these aircraft in 2014:
1. New jet engines were installed on some of the MD-80s and MD-83s at a cost of $25.0 million.
2. The company paid $2.0 million to paint one-eighth of the fleet with the firm’s new colors to create a new public image. It intends to paint the remainder of the fleet over the next\ seven years.
3. Routine maintenance and repairs on various aircraft cost $8.0 million.
4. Noise abatement equipment (“hush kits”) was installed on the fleet of DC-9s to meet FAA maximum allowable noise levels on takeoff. Equipment and installation cost $7.5 million.
5. The avionics systems were replaced on the Lockheed L-1011s. This will allow the aircraft to be used four more years than originally expected.
6. The existing seats on all 747s were replaced with new, more comfortable seats at a cost of $0.5 million.
7. The jet engines on 50% of the Boeing 727s received a major overhaul at a cost of $5.0 million. As a result, the aircraft should be more fuel efficient.

Required:
1. Which of these expenditures should Fly-by-Night capitalize? Why?
2. How might Fly-by-Night use expenditures like these to manage its earnings?



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  • CreatedSeptember 10, 2014
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