Chapter 7, Problem 7.5S

LO 3

(Learning Objective 3: Compute depreciation and book value by three methods—first year only) On January 1, 2017, Northeast Transportation Company purchased a used aircraft at a cost of $53,900,000. 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.