Question

years’-digits method. The residual value is expected to be $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method.

Ignoring income taxes, prepare the journal entry relating to the machine for 2018.(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).)
  

Brief Exercise 20-4 Change in depreciation methods [LO20-3] Irwin, Inc., constructed a machine at a total cost of $25 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 $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (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).) Answer is not complete. No Event General Journal Debit Credit 1 Depreciation expense Accumulated depreciation <Prev 2 of 5 Next >

Answer 1

Answer:

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Depreciation	$1,600,000
	Accumulated depreciation		$1,600,000
	(To record adjusting depreciation entry)

Working Notes:

Average number of years = n(n=1)/2 = (10(11))/2 = (110/2) = 55
SYD depreciation = (Number of years completed / Average number of year *(Total cost - Residual value))
=(10+9+8/55)*($25 million - $3 million)
=0.490909 * $22 million
=10.8 million

Calculate annual straight line depreciation 2018-2024

Particulars	Amount ($ in millions)
Machine cost	$25
Less: Accumulated depreciation	$10.8
Un depreciated cost Jan 1 2016	$14.2
Estimated residual value	$3
Depreciation over remaining 7 years	$11.2
Divide: Remaining years	7 years
Annual straight line depreciation 2018-2024	$1.6 million