33. Orange Corp. constructed a machine at a total cost of $70 million. Construct

Question

33. Orange Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. 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 $4 million. At the beginning of 2018, Orange decided to change to the straight-line method. Ignoring income taxes, what will be Orange's depreciation expense for 2018?

Multiple Choice

$6.6 million.

$5.4 million.

$4.8 million.

$9.4 million.

Explanation / Answer

Sum of year digit = 10+9+8+7+6+5+4+3+2+1 = 55

Accumlated depreciation 2015 to 2017 = (70-4)*27/55 = 32.40

Book value at the beginning of 2018 = 70-32.40 = 37.60

Straight line dep = 37.60/7 = 5.4

so answer is b) $5.4 million

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