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 $4,300,000, 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, $680,000 cash. b. Extensive and major repairs to the airplane's engine, $2,890,000 cash. These repairs were completed at the end of the current year. c. Recorded depreciation for the current year. Required: 1. 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.
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 $4,300,000, 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, $680,000 cash. b. Extensive and major repairs to the airplane's engine, $2,890,000 cash. These repairs were completed at the end of the current year. c. Recorded depreciation for the current year. Required: 1. 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.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter10: Accounting Systems For Manufacturing Operations
Section: Chapter Questions
Problem 10.3E: Classifying costs as factory overhead Which of the following items are properly classified as part...
Related questions
Question
None
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning