Change in Service Life Prior to its acquisition by i niedilise, an annual report of contained the following footnote: Note 2, Change in accounting estimate. TWA extended the estimated useful lives of Boeing 727-100 aircraft from principally sixteen years to principally twenty years. As a result, depreciation and amortization expense was decreased by $9,000,000. The TWA annual report also contained the following data: depreciation, $235,518,000; net income, $42,233,000. The cost of the 727-100 aircraft subject to depreciation was $800 million. Residual values were predicted to be 10% of acquisition cost. Assume a combined federal and state income tax rate of 46% throughout all parts of these requirements. 1. Was the effect of the change in estimated useful life a material difference? Explain, including computations. 2. The same year's annual report of contained the following footnote: Depreciation-Substantially all the flight equipment is being depreciated on a straight-line basis to residual values (10% of cost) over a 10-year period from dates placed in service. The Delta annual report also contained the following data: depreciation, $220,979,000; net income, $146,474,000. Suppose Delta had used a 20-year life instead of a 10-year life. Assume a 46% applicable income tax rate. Compute the new depreciation and net income. 3. Suppose TWA had used a 10-year life instead of a 20-year life on its 727-100 equipment. Estimated residual value is 10%. Compute the new depreciation and net income. For purposes of this requirement, assume that the equipment cost $800 million and has been in service 1 year and that reported net income based on a 20-year life was $42,233,000.