Acquisition, Depreciation, and Sale of an Asset On January 2, 2007, Union Oil Company purchased a new airplane. The following costs are related to the purchase:

Required:
1. Prepare the journal entry to record the payment of these items on January 2, 2007.
2. Ignore your answer to part (1) and assume that the airplane cost $90,000 and has an expected useful life of five years or 1,500 hours. The estimated salvage value is $3,000. Using units-of-production depreciation and assuming that 300 hours are flown in 2008, calculate the amount of depreciation expense to be recorded for the second year.
3. Ignore the information in parts (1) and (2) and assume that the airplane costs $90,000, that its expected useful life is five years, and that its estimated salvage value is $5,000.
The company now uses the straight-line depreciation method. On January 1, 2010, the following balances are in the related accounts:

Prepare the necessary journal entries to record the sale of this airplane on July 1, 2010, for $40,000.

Transcribed Image Text:

Airplane, base price Cash discount Sales tax Delivery charges $112,000 3,000 4,000 1,000