P8-67 (similar to) Question Help Suppose that a major airline extended the useful lives of its Happy 727-100 aircraft from 8 years to 12 years. As a result, depreciation and amortization expense was decreased by $10,000,000. The company's financial statements also contained the following data depreciation expense, $236,940,000 and net income, S42,960,000. The cost of the Boeing 727-100 aircraft subject to depreciation was $750 million Residual values were predicted to be 10% of acquisition cost Assume a combined federal and state income tax rate of 36% throughout all parts of these requirements Read the requirements Requirement 1. Was the effect of the change in estimated useful life a material difference? Explain, including computations (Round percentage to one decimal place) The change may not be judged as material in relation to the total depreciation expense. In relation to net income, it is material. Additional depreciation of $10,000,000 would have decreased net income by $ 6,400,000 This is 14.9% of reported net income Requirement 2. Examination of the annual report of a competitor airline indicated that the competitor used a 6-year life. Suppose the company making the change in estimate had changed to a 6-year life instead of a 12-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 $750 million and has been in service 1 year and that reported net income based on a 12-year life was $42,960,000 Begin by selecting the formula and entering the amounts to calculate the depreciation expense for the first year of the aircraft under 6 years and 12 years useful life. (Abbreviation used Acc. = Accumulated depreciation Enter amounts in whole dollars not in millions Round your final answers to the nearest whole dollar)