The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airline companies, decided to lengthen the useful lives of its aircraft from 22 to 27 years. Shortly thereafter, following Southwest’s lead, other airlines made the same move. Some people argue that the useful lives and depreciation of airplanes are irrelevant. They claim that because of the extensive maintenance and testing that airline companies are required by law to perform; the planes theoretically can be in service for an indefinite future period. What is wrong with this argument?

The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airline companies, decided to lengthen the useful lives of its aircraft from 22 to 27 years. Shortly thereafter, following Southwest’s lead, other airlines made the same move. Some people argue that the useful lives and depreciation of airplanes are irrelevant. They claim that because of the extensive maintenance and testing that airline companies are required by law to perform; the planes theoretically can be in service for an indefinite future period. What is wrong with this argument?

Business Its Legal Ethical & Global Environment

10th Edition

ISBN:9781305224414

Author:JENNINGS

Publisher:JENNINGS

Chapter13: Contracts And Sales:performance And Remedies

Section: Chapter Questions

Problem 10QAP

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The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airline companies, decided to lengthen the useful lives of its aircraft from 22 to 27 years. Shortly thereafter, following Southwest’s lead, other airlines made the same move.

Some people argue that the useful lives and depreciation of airplanes are irrelevant.
They claim that because of the extensive maintenance and testing that airline companies are required by law to perform; the planes theoretically can be in service for an indefinite future period. What is wrong with this argument?

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airline companies, decided to lengthen the useful lives of its aircraft from 22 to 27 years. Shortly thereafter, following Southwest’s lead, other airlines made the same move.(a) What advantage, if any, did the airlines gain by making this change in estimate?(b) Would it have changed earnings or cash flows, and if it did, would the change have been favorable or negative?(c) Some people argue that the useful lives and depreciation of airplanes are irrelevant.They claim that because of the extensive maintenance and testing that airline companies are required by law to perform; the planes theoretically can be in service for an indefinite future period. What is wrong with this argument?
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