Chapter 17.I, Problem 3TIE

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### 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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