On 1 January 20X6 Outback Air purchased a new engine for one of its aircraft which is used to transport adventurers to remote regions of Western Australia. The engine cost $750,000 and has a useful life of 10,000 flight hours. Regulations require careful usage records, and motors must be replaced or rebuilt at the end of the 10,000-hour service period. Outback simply chooses to sell its used engines and purchase new ones. Used engines are expected to be resold for 1/3 of their original cost.
Outback uses the units of production method of depreciation.
(a) Assuming the engine was used as follows, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year.

20X6 1,500 hours
20X7 4,000 hours
20X8 3,000 hours
20X9 1,500 hours
(b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 20X7.
(c) Prepare journal entries to record the acquisition of the asset, the annual depreciation for each year, and the eventual sale of the asset for $250,000.

Answer rating: 100% (QA)

The depreciation rate per flight hour can be calculated using the formula Depreciation rate Cost of ... View the full answer