On January 1, 2018, Alaska Freight Airines purchased a used airplane for $49,000

Question

On January 1, 2018, Alaska Freight Airines purchased a used airplane for $49,000,000. Alaska Freight Airlines expects the plane to remain useful for five years (6,000,000 miles) and to have a residual value of $7,000,000. The company expects the plane to be flown 1,100,000 miles the first year. Read the mpuiremants. Requirement 1a. Compute Alaska Freight Airlines's firsf-year depreciation expense on the plane using the straight-ine method. Begin by selecting the formula to calculate the company's first-year depreciation expense on the plane using the straight-ine method. Then enter the amounts and calculate the depreciation for the first year. Straight-line depreciation )r Requirement 1b. Compute Alaska Freight Airines's wst-year depreclation expense on the plane using the units-of-production method. Before calculating the fir year depreciation expense on the plane using the units production method co o late the de nec ation expense per unit elect the formula, then enter the ?mounts and calculate the depreciation per unit

Explanation / Answer

1a) Straight line Depreciation :-

= (Cost - Residual Value) / Useful Life

= ($49000000 - $7000000) 5

= $42000000 / 5

= $8400000

1b) Depreciation Per Unit :-

= (Cost - Residual Value ) / Useful life in units

= ($49000000 - $7000000) / 6000000

= $42000000 / 6000000

= $7

Units of Production Depreciation ;-

= Depreciation Per Unit * Current Year Usage

= $7 * 1100000

= $7700000

1c) Double Declining Balance Depreciation :-

= (Cost * 2) / Useful Life

= ($49000000 * 2) / 5

= $98000000 / 5

= $19600000

2) Airplane's Book Value at the end of first year :-

Particulars Straight Line Units of Production Double Declining Balance Cost $49000000 $49000000 $49000000 Less : Depreciation ($8400000) ($7700000) ($19600000) Book Value $40600000 $41300000 $29400000

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