2. What was the net book value of the aircraft on December 31 of the current year? Net book value
2. What was the net book value of the aircraft on December 31 of the current year? Net book value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
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A recent annual report for Celtic Air Lines included the following note:
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Maintenance Costs
We record maintenance costs related to our fleet in aircraft maintenance materials and outside repairs. Maintenance costs
are expensed as incurred, except for costs incurred under power-by-the-hour contracts, which are expensed based on
actual hours flown. Modifications that enhance the operating performance or extend the useful lives of airframes or
engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term,
whichever is shorter.
Assume that Celtic made extensive repairs on an airplane engine, increasing the fuel efficiency and extending the useful
life of the airplane. The existing airplane originally cost $4,500,000, and by the end of last year, it was half depreciated
based on use of the straight-line method, a 20-year estimated useful life, and no residual value. During the current year,
the following transactions related to the airplane were made:
a. Ordinary repairs and maintenance expenditures for the year, $720,000 cash.
b. Extensive and major repairs to the airplane's engine, $2,850,000 cash. These repairs were completed at the end of the
current year.
c. Recorded depreciation for the current year.
2. What was the net book value of the aircraft on December 31 of the current year?
Net book value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8f1e7e8-4377-4712-aa0d-15f0d8934186%2F5c0ca445-c06b-4fa6-97b2-a119015d5bc3%2F0s1k8sr_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
A recent annual report for Celtic Air Lines included the following note:
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Maintenance Costs
We record maintenance costs related to our fleet in aircraft maintenance materials and outside repairs. Maintenance costs
are expensed as incurred, except for costs incurred under power-by-the-hour contracts, which are expensed based on
actual hours flown. Modifications that enhance the operating performance or extend the useful lives of airframes or
engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term,
whichever is shorter.
Assume that Celtic made extensive repairs on an airplane engine, increasing the fuel efficiency and extending the useful
life of the airplane. The existing airplane originally cost $4,500,000, and by the end of last year, it was half depreciated
based on use of the straight-line method, a 20-year estimated useful life, and no residual value. During the current year,
the following transactions related to the airplane were made:
a. Ordinary repairs and maintenance expenditures for the year, $720,000 cash.
b. Extensive and major repairs to the airplane's engine, $2,850,000 cash. These repairs were completed at the end of the
current year.
c. Recorded depreciation for the current year.
2. What was the net book value of the aircraft on December 31 of the current year?
Net book value
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