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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Kelowna Air Service bought a small commuter airplane for $386,000. It is expected to have a useful life of 4 years and a trade-in value of $70,000. Prepare a depreciation schedule for the airplane by using the 150 % declining-balance method.

To determine

To calculate: The depreciation schedule for Kelowna Air Service using 150% declining balance method when the total cost of small airplane is $386,000.

Explanation

Given Information:

The total cost of small airplane is $386,000 and expected to have useful life of 4 years. The trade-in value of airplane is $70,000.

Formula used:

The steps to prepare depreciation schedule by the declining balance method are as follows:

Step 1: Calculate the declining balance rate by the below formula

Declining-balance rate=1Useful life×Multiple

Step 2: Calculate the depreciation for each year by multiplying beginning book value by declining balance rate as:

Depreciation for the year=Beginning book value×Decliningbalance rate

Step 3: Calculate the ending book value by subtracting depreciation of the year from the beginning book value as:

Ending book value=Beginning book valueDepreciation for year 1

Step 4: The depreciation is complete when the ending book value equals the salvage value.

Step 5: Prepare the depreciation schedule in form of chart.

Calculation:

Consider the total cost of small airplane is $386,000. The trade-in value of airplane is $70,000 and expected to have useful life of 4 years.

The declining-balance rate is:

Declining-balance rate=1Useful life×Multiple

Now, using the above formula, the declining-balance rate is:

Decliningbalance rate=14×150%=14×1.5=0.375=37.5%

The depreciation for the year is:

Depreciation for the year=Beginning book value×Decliningbalance rate

Now, using the above formula, the depreciation for 1st year is:

The depreciation for year 1=386,000×0.375=$144,750

The ending book value is:

Ending book value=Beginning book valueDepreciation for year 1

Now, using the above formula, the ending book value for 1st year is:

Ending book value=386,000144,750=$241,250

Now, using the above formula, the depreciation for 2nd year is:

The depreciation for year 2=241,250×0

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