The owner of newly formed Lake of the Woods Air Taxi, a friend of your family, knows you are taking an accounting course and asks for some advice. Mr. Linden tells you that he is pretty good at running the company but doesn't understand accounting. Specifically, he has two concerns:
1. The company has just paid $400,000 for two used float planes. His accountants tell him that he should use accelerated amortization for his financial statements, but he understands that straight-line amortization will result in lower charges to expense in the early years. He wants to use straight-line amortization.
2. A friend told him that Lake of the Woods Air Taxi should capitalize all repairs to the planes and "spread the cost out over the life of the planes." He wonders if there is anything wrong with this advice.
Required
Respond to Mr. Linden's questions using your understanding of amortization and betterments and repairs.