Question

On May 22, 2018, for the purpose of transporting company officials to remote location,
Oil & Gas Ltd. purchased a small airplane costing $120,000 and paid $20,000 for
painting and lettering.
The company paid $25,000 in cash and signed a one-year notes payable for the
balance.
The airplane is expected to have a useful life of 16 years or 1,500,000 kilometers, with
a salvage value of $20,000.
Required
a. Calculate the cost of the airplane and prepare a journal entry
b. Compute depreciation expense for the year ended December 31, 2018, assuming the
company uses the straight-line method of depreciation and prepare a journal entry
c. Compute depreciation expense for the year ended December 31, 2018, assuming the
company uses the double-declining-balance method of depreciation and prepare a
journal entry
d. Compute depreciation expense for the year ended December 31, 2018, assuming the
company uses the units-of-production method of depreciation and that the airplane was
flown 96,000 kilometers during the year and prepare a journal entry
e. During 2020, management has decided that, as a result of heavy usage, the total life
of the airplane would only be 13 years instead of the original estimate of 16 years. The
salvage value was expected to be $15,000 at the end of the airplane’s useful life. Revise
the depreciation expense for the year ended December 31, 2020, assuming the
company uses the straight-line method of depreciation, and prepare a journal entry

Answer 1

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