Posted: April 5th, 2016

Show the airplane’s book value at the end of the first year under the straight-line method.

Question: At the beginning of the year, Orbit Airways purchased a used Boeing aircraft at a cost of $45 million. Orbit expects the plane to remain useful for five years (3 million miles) and to have a residual value of $5 million. Orbit expects the plane to be flown 750,000 miles the first year.

Using Excel:
1. Compute Orbit’s first-year depreciation on the plane using the following methods:
a. Straight-line
b. Units-of-production
c. Double-declining-balance
2. Show the airplane’s book value at the end of the first year under the straight-line method.