Question

A British Tran jet costs $55,000,000 and is expected to fly 500,000,000 miles during its life Residual value is expected to be zero because the plane was used when acquired. If the plane travels 36,000,000 miles the first year, how much depreciation should British Tran record under the units-of-production method? A. $13, 750,000 B. $6, 875,000 C. $3, 960,000 D. Cannot be determined from the data given

Answer 1

Answer:

The correct answer is option (C).

Explanation:

According to the scenario, the computation of the given data are as follows:

Cost = $55,000,000

Expected life = 500,000,000 miles

First year use = 36,000,000 miles

So, we can calculate the depreciation by using following formula:

Depreciation = (Cost × First year use ÷ Expected life)

By putting the value, we get

Depreciation = ( $55,000,000 × 36,000,000 ÷ 500,000,000)

= $3,960,000