On January 1, 2017, Timely Delivery Transportation Company purchased a used aircraft at a cost of $ 51,200,000. Timely Delivery expects the plane to remain useful for five years (5,000,000 miles) and to have a residual value of $ 5,200,000. Timely Delivery expects to fly the plane 925, 000 miles the first year, 1, 200, 000 miles each year during the second, third, and fourth years, and 475, 000 miles the last year.
Here is questions data with different number with step by step Explanation:
On January 1, 2017, Timely Delivery Transportation Company purchased a used aircraft at a cost of $ 51,200,000. Timely Delivery expects the plane to remain useful for five years (5,000,000 miles) and to have a residual value of $ 5,200,000. Timely Delivery expects to fly the plane 925,000 miles the first year, 1 comma 200,000 miles each year during the second, third, and fourth years, and 475,000 miles the last year.
There are three major methods used to compute depreciation. Generally, each method computes a different amount of depreciation expense for each year, but the total depreciation over the life of the asset for all three methods will be the same. Residual values are not depreciated since the company expects to collect that amount at the end of the useful life. The depreciable basis of an asset is the cost less the residual value.
Requirement 1. Compute Timely Delivery's depreciation for the first two years on the plane using the straight-line method, the units-of-production method, and the double-declining balance method.
a. Straight-line method
The straight-line method allocates an equal amount of depreciation to each year of the asset's useful life. Recall that we calculate straight-line depreciation on the depreciable cost of the asset.
Using the formula provided, calculate the straight-line depreciation for 2017.
b. Units-of-production method
The units-of-production method allocates a fixed amount of depreciation for each unit of production. The depreciation expense varies each year based upon the number of units the asset produces in the year. Using the formula provided, let's calculate the depreciation per unit (in this example units = miles). (Round your final answer to two decimal places. Abbreviations used: prod. = production.)
c. Double-declining balance method
The double-declining-balance (DDB) method is an accelerated method of depreciation in which more depreciation expense is taken in the beginning years of an asset's life. This assumes that an asset is more productive, and producing more revenue, in the beginning years. This method computes annual depreciation by multiplying the asset's declining book value by a constant percentage, which is two times the straight-line depreciation rate. DDB amounts are computed as follows:
Now calculate the double-declining depreciation expense for 2018. Remember that the asset's book value is now the cost reduced by the accumulated depreciation at the end of 2017.
Requirement 2. Show the airplane's book value at the end of the first year under each depreciation method.
Remember, since this is the first year the asset has been in service, accumulated depreciation will be equal to depreciation expense. The cost will be the same for all three methods.
Begin with the straight-line book value.
Thanks
Here is questions data with different number with step by step Explanation:
On January 1, 2017, Timely Delivery Transportation Company purchased a used aircraft at a cost of $ 51,200,000. Timely Delivery expects the plane to remain useful for five years (5,000,000 miles) and to have a residual value of $ 5,200,000. Timely Delivery expects to fly the plane 925,000 miles the first year, 1 comma 200,000 miles each year during the second, third, and fourth years, and 475,000 miles the last year.
There are three major methods used to compute depreciation. Generally, each method computes a different amount of depreciation expense for each year, but the total depreciation over the life of the asset for all three methods will be the same. Residual values are not depreciated since the company expects to collect that amount at the end of the useful life. The depreciable basis of an asset is the cost less the residual value.
Requirement 1. Compute Timely Delivery's depreciation for the first two years on the plane using the straight-line method, the units-of-production method, and the double-declining balance method.
a. Straight-line method
The straight-line method allocates an equal amount of depreciation to each year of the asset's useful life. Recall that we calculate straight-line depreciation on the depreciable cost of the asset.
Using the formula provided, calculate the straight-line depreciation for 2017.
b. Units-of-production method
The units-of-production method allocates a fixed amount of depreciation for each unit of production. The depreciation expense varies each year based upon the number of units the asset produces in the year. Using the formula provided, let's calculate the depreciation per unit (in this example units = miles). (Round your final answer to two decimal places. Abbreviations used: prod. = production.)
c. Double-declining balance method
The double-declining-balance (DDB) method is an accelerated method of depreciation in which more depreciation expense is taken in the beginning years of an asset's life. This assumes that an asset is more productive, and producing more revenue, in the beginning years. This method computes annual depreciation by multiplying the asset's declining book value by a constant percentage, which is two times the straight-line depreciation rate. DDB amounts are computed as follows:
- First, compute the straight-line depreciation rate per year. A truck with a 5-year useful life has a straight-line depreciation rate of 1/5, or 20%, each year. An asset with a 10-year useful life has a straight-line depreciation rate of 1/10, or 10%, and so on.
- Second, multiply the straight-line rate by 2 to compute the DDB rate. For a 5-year asset, the DDB rate is 40% (20% x 2). A 10-year asset has a DDB rate of 20% (10% x 2).
- Third, multiply the DDB rate by the period's beginning asset book value (cost less accumulated depreciation). Under the DDB method, ignore the residual value of the asset in computing depreciation, except during the last year.
- Fourth, determine the final year's depreciation amount, that is, the amount needed to reduce the asset's book value to its residual value. The residual value should not be depreciated but should remain on the books until the asset is disposed of.
Now calculate the double-declining depreciation expense for 2018. Remember that the asset's book value is now the cost reduced by the accumulated depreciation at the end of 2017.
Requirement 2. Show the airplane's book value at the end of the first year under each depreciation method.
Remember, since this is the first year the asset has been in service, accumulated depreciation will be equal to depreciation expense. The cost will be the same for all three methods.
Begin with the straight-line book value.
Thanks
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