Irwin, Inc., constructed a machine at a total cost of $57 million. Construction
ID: 2480163 • Letter: I
Question
Irwin, Inc., constructed a machine at a total cost of $57 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.
Irwin, Inc., constructed a machine at a total cost of $57 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.
Explanation / Answer
Cost of Machine: $ 57000,000 Residual value: $ 2000,000 Depreciable Amount: Cost - residual value 57000,000 -2000,000 = $ 55,000,000 Sum of Years digit: (10+9+8+7+6+5+4+3+2+1)= 55 Depreciation in Year 2013: 55000,000/55 *10 = $ 10,000,000 Depreciation in Year 2014: 55000,000 /55*9: $ 9000,000 Depreciation in Year 2015: 55000,000/55*8: $ 8000,000 Accumulated Depreciation balance on DEc31 2015: $ 27000,000 Remaining Depreciable amount on Jan1 2016: 55000,000 -27000,000 = $ 28000,000 Remaining Life of Assets: 10-3 = 7 years Annual Dpreciation as per SLM: Remaining Depreciable Amount/ Remaining Life $ 28000,000 /7 years = $ 4000,000 Journal Entry for Depreciation in Year 2016: Dec 31 2016 Depreciation expense Account Dr. 4,000,000 Accumulated Depreciation-Machine Account 4,000,000
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