On January 1, 2020, Northeast Transportation Company purchased a used aircraft at a cost of $58,900,000. Northeast
Question:
On January 1, 2020, Northeast Transportation Company purchased a used aircraft at a cost of $58,900,000. Northeast expects the plane to remain useful for five years (7,200,000 miles) and to have a residual value of $4,900,000. Northeast expects to fly the plane 750,000 miles the first year, 1,375,000 miles each year during the second, third, and fourth years, and 2,325,000 miles the last year.
1. Compute Northeast’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.
Step by Step Answer:
1 Firstyear depreciation ...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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