On January 1, 2018, Boston Airline purchased a used airplane at a cost of $55,900,000. Boston Airline expects the plane to remain useful for nine years (6,000,000 miles) and to have a residual value of $5,900,000. Boston Airline expects the plane to be flown 1,000,000 miles the first year and 1,300,000 miles the second year. Requirements Compute first and second-year (2019) depreciation expense on the plane using the following methods: Straight-line Units-of-production Double-declining-balance Calculate the balance in Accumulated Depreciation at the end of the second year for all three methods.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2018, Boston Airline purchased a used airplane at a cost of $55,900,000. Boston Airline expects the plane to remain useful for nine years (6,000,000 miles) and to have a residual value of $5,900,000. Boston Airline expects the plane to be flown 1,000,000 miles the first year and 1,300,000 miles the second year.
Requirements
- Compute first and second-year (2019)
depreciation expense on the plane using the following methods: - Straight-line
- Units-of-production
- Double-declining-balance
- Calculate the balance in
Accumulated Depreciation at the end of the second year for all three methods.
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