question archive South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000

South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000

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South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2022 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000.

 

(1)Compute the depreciation and book value at December 31, 2021 using the straight-line method and the double-declining-balance method.

 

(2)Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2022.

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The computations are provided on the attached file.

Step-by-step explanation

Straight line      
         
Cost   $ 35,000,000.00    
Salvage Value $   5,000,000.00    
Depreciable Cost $ 30,000,000.00    
Useful Life 20 years  
Depreciation expense per years $   1,500,000.00    
         
         
    Depreciation Accumulated  
Year Cost expense depreciation Book value
         
2019 $ 35,000,000.00 $   1,500,000.00 $ 1,500,000.00 $ 33,500,000.00
2020 $ 35,000,000.00 $   1,500,000.00 $ 3,000,000.00 $ 32,000,000.00
2021 $ 35,000,000.00 $   1,500,000.00

$ 4,500,000.00

$ 30,500,000.00

Double declining          
             
Useful Life 20 years      
Depreciation Rate (100% / 20 years) x 2      
  = 10%        
             
    Beginning   Depreciation Accumulated  
Year Cost WDV Rate Expense Depreciation Book value
             
2019 $ 35,000,000.00 $ 35,000,000.00 10% $ 3,500,000.00 $ 3,500,000.00 $ 31,500,000.00
2020 $ 35,000,000.00 $ 31,500,000.00 10% $ 3,150,000.00 $ 6,650,000.00 $ 28,350,000.00
2021 $ 35,000,000.00 $ 28,350,000.00 10% $ 2,835,000.00

$ 9,485,000.00

$ 25,515,000.00

Depreciation expense        
             
Book Value as on December 31 2022   $ 30,500,000.00    
Revised salvaged value   $ 35,00,000.00    
Depreciable cost     $ 27,000,000.00    
Remaining useful life     12 years   (15 years - 3 years)
Revised annual depreciation  

$   2,250,000.00