Reference no: EM132517923

Flysafe Airlines purchased equipment on January 25, 2018, for $64,000. Its financial year ends on December 31 each year. The expected useful life of the equipment is 10 years, and its residual value is $4,000.

Required: (Transaction descriptions are not required for journal entry)

Question (a) Using double declining balance method and the half-year convention, (i) calculate the annual depreciation expense for 2018 and 2019 respectively, (ii) show how the equipment would be reported on Statement of Financial Position at 31 December 2019.

Question (b) Using straight-line method (rounded to the nearest whole month), (i) calculate the annual depreciation expense for 2018 and 2019 respectively, (ii) prepare the journal entry of depreciation for 2019.

Question (c) Assume Flysafe Airlines has depreciated the equipment by using the straight-line method. On December 31, 2019, it sold the equipment for $37,500 cash.
Prepare journal entries for the sale of the equipment.

Question (d) In preparing 2019 financial statements, management of Flysafe Airlines decided to change the estimated useful life from 10 years to 15 years. Briefly explain how this change in estimated life of equipment is likely to affect this year's profit. Do you agree to the change from the viewpoint of a professional accountant?