On March 1, 2014, Raymond Company purchased a Cessna Citation M2 at a cost of $5
ID: 2464675 • Letter: O
Question
On March 1, 2014, Raymond Company purchased a Cessna Citation M2 at a cost of $5,800,000. Raymond incurred an additional cost of $200,000 to prepare the aircraft for it's use as a corporate aircraft. The Cessna is estimated to have a useful life of 25,000 flight hours. The aircraft was flown 1,500 hours in 2014 and 1,800 hours in 2015. The aircraft is expected to have a residual of $250,000 at the end of its useful life. Anniston has a 12/31 year end. Required: Calculate depreciation expense, accumulated depreciation and book value for 2014 and 2015 using the units of production method Prepare the journal entry to record the purchase of the Cessna and the depreciation expense for 2014.Explanation / Answer
Depreciation per hour = (Cost + Additional Cost - Salvage Value) / Total Number of hours used
= (5,800,000 + 200,000 - 250,000) / 25000
= $230
Therefore, Depreciation charged in 2014 = 230*1,500 = 345,000
(Note: The Guven 1,500 hours are presumed to be the hours for which aircraft is used in year 2014)
Depreciation charged in 2015 = 230*1,800 = 414,000
Answer 1 :
Book Value on 2014 = Purchase cost +Additional cost- Depreciation
Book Value for 2014= 58,00,000+2,00,000- 345,000
Book Value for 2014 =56,55,000
Book Value on 2015 =Book value for 2014- Depreciation for 2015
Book value for 2015 = 56,55,000-4,14,000
Book Value at the end of 2015 = 5,241,000
Answer to Part 2:
Journal Entry to record purchase;
March 01, 2014 Aircraft Account Dr 5,800,000
To Cash/Bank Account 5,800,000
March 01,2014 Aircraft Account Dr 2,00,000
To Cash/Bank Account 2,00,000
Journal Entry to record Depreciation for 2014:
December 31,2014 Depreciation Dr 3,45,000
To Acumlated Depreciation 3,45,000
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