Irwin, Inc., constructed a machine at a total cost of $35 million. Construction

ID: 2426624 • Letter: I

Question

Irwin, Inc., constructed a machine at a total cost of $35 million. Construction was completed at the end of 2012 and the machine was placed in service at the beginning of 2013. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $2 million. At the beginning of 2016, Irwin decided to change to the straight-line method.

Ignoring income taxes, prepare the journal entry relating to the machine for 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Explanation / Answer

Depreciation using sum of digit method

Journal entry for the year 2016

Additional depreciation to be charged in 2016 = (3.3*3)-(0.60+1.20+1.80) i.e 6.30

Depreciation to be charged for the year 2016 = 3.3

Total depreciation to be charged = 6.30+3.30 i.e 990

Depreciation account ..................Dr 9.90

To machinery 990

( Being depreciation normal and additional charged for the yearv 2016)

Year Taxable base Ratio Depreciation Depreciation using straight line method 2013 33 0.018182 0.60 3.3 2014 33 0.036364 1.20 3.3 2015 33 0.054545 1.80 3.3 2016 33 0.072727 2.40 3.3 2017 33 0.090909 3.00 3.3 2018 33 0.109091 3.60 3.3 2019 33 0.127273 4.20 3.3 2020 33 0.145455 4.80 3.3 2021 33 0.163636 5.40 3.3 2022 33 0.181818 6.00 3.3

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Irwin, Inc., constructed a machine at a total cost of $35 million. Construction

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