90.2K

Verified Solution

Link Copied!

Required information

P$8-2($Algo$)$ Analyzing the Effects of Repairs, an Addition, and Depreciation LO$8-2,8-3$

$[$The following information applies to the questions displayed below.$]$

A recent annual report for Celtic Air Lines included the following note:

NOTE $1$: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Maintenance Costs

We record maintenance costs related to our fleet in aircraft maintenance materials and outside repairs. Maintenance costs are expensed as incurred, except for costs incurred under power$-$by$-$the$-$hour contracts, which are expensed based on actual hours flown. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.

Assume that Celtic made extensive repairs on an airplane engine, increasing the fuel efficiency and extending the useful life of the airplane. The existing airplane originally cost $$4,500,000,$ and by the end of last year, it was half depreciated based on use of the straight$-$line method, a $20-$year estimated useful life, and no residual value. During the current year, the following transactions related to the airplane were made:

a$.$ Ordinary repairs and maintenance expenditures for the year, $$650,000$ cash.

b$.$ Extensive and major repairs to the airplane's engine, $$2,810,000$ cash. These repairs were completed at the end of the current year.

c$.$ Recorded depreciation for the current year.

P$8-2$ Part $1$

Required:

Applying the policies of Celtic, complete the following, indicating the effects for the preceding expenditures. Indicate the effects by entering positive value for increase, negative value for decrease.

Answer & Explanation Solved by verified expert

See Answer