Orange Corp. constructed a machine at a total cost of $68 million. Construction

Question

Orange Corp. constructed a machine at a total cost of $68 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 9-year life using the sum-of-the-years'-digits method. The residual value is expected to be $4 million. At the beginning of 2016, Orange decided to change to the straight-line method. Ignoring income taxes, what will be Orange's depreciation expense for 2016? (Do not round your intermediate calculation and round final answer to 1 decimal place.)

$9.6 million.

$5.0 million.

$7.1 million.

$5.6 million.

Explanation / Answer

Sum of year digit = (9+8+7+6+5+4+3+2+1) = 45

Depreciable base =(68-4) = 64

(2013-2015) dep = 64*24/45 = 34.13

Straight line dep for 2016 = (68-4-34.13)/6 = 5.0 million

so answer is b) $5.0 million

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