Question

Irwin, Inc., constructed a machine at a total cost of $32 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 straight-line method. The residual value is expected to be $2 million. At the beginning of 2018, Irwin decided to change to the sum-of-the-years’-digits 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 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) Answer is complete but not entirely correct. N . General Journal Credit No 1 Event 1 Debit 2.47% Credit L Depreciation expense Accumulated depreciation 2.47

Answer 1

Depreciation Base = Total cost of machine - Residual value = $32 million - $2 million = $30 million.

Depreciation on machine using straight-line method = Depreciation base / Useful life = $30 million / 10 years = $ 3 million

Total depreciation over 3 years = $3 million * 3 years = $9 million.

Book value in the start of 2018 = Total cost - Accumulated depreciation = $32 million - $9 million = $23 million.

Year	Depreciation Base	Remaining life of machine	Depreciation fraction	Expense
2015	$30 million	10	10/55	$5,454,545,45
2016	$30 million	9	9/55	$4,909,090.91
2017	$30 million	8	8/55	$4,363,636.36
2018	$30 million	7	7/55
2019	$30 million	6	6/55
2020	$30 million	5	5/55
2021	$30 million	4	4/55
2022	$30 million	3	3/55
2023	$30 million	2	2/55
2024	$30 million	1	1/55
		55

Book value of machine in the beginning of 2018 = Total cost of machine - Depreciation using sum-of the years method = $32,000,000 - $$5,454,545,45 - $4,909,090.91 - $4,363,636.36 = $15,272,727.3

Depreciation booked less over the years to be booked in current year = Book value of machine using straight-line method - Book value using sum-of-the-years digit method = $23,000,000 - $15,272,727.3 = $7,727,272.7 or $7.73 millions

No	Event	General Journal	Debit ($ in millions)	Credit ($ in millions)
1	1	Depreciation expense	7.73
		Accumulated Depreciation		7.73