Orange Corp. constructed a machine at a total cost of $54 million. Construction

Question

Orange Corp. constructed a machine at a total cost of $54 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 depreclated over a 11-year life using the sum-of-the-years'-digits method. The residual value is expected to be $3 million At the beginning of 2016, Orange decided to change to the straight-line method. Ignoring Income taxes, what will be Orange's depreclation expense for 2016? (Do not round your intermediate calculation and round final answer to 1 decimal place.) O $46 million. O $6.8 million. O $3.9 million. O $3.5 million.

Explanation / Answer

1). Sum of year digit = n(n+1)/2 = 11*(11+1)/2 = 66

Depreciation for First three Years = ($54-$3)*(11+10+9)/66 = $23.18 million

book value of the medicine = $54 - $23.18 = 30.82

Depreciation for 2016 = ($30.82 - $3)/8 = 3.477 million

The Answer is "D. $3.5 Million"

2). The answer is "C"

C. a change in the useful life of a depreciation asset.

It is an Example of change in accounting estimate.

3).Net Income :-

Prepaid Insurance Overstated = $72000 * (1-30%) = $50400

Supplies Expense Understated = $111000 * (1-30%) = $77700

Net Overstatement of Net Income = $50400 + $77700 = $128100

The Answer is "C"

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