Irwin, Inc., constructed a machine at a total cost of $68 million. Construction
ID: 2476397 • Letter: I
Question
Irwin, Inc., 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 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $2 million. At the beginning of 2016, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2016.
I know I need to debit depreciation expense and credit accumulated depreciation - but I can't figure the numbers out even after looking at and following several examples on Chegg. So, can someone please help me and provide an explanation?
Explanation / Answer
Answer
Sum of years digit method
Figures in $
In millions
Year
Asset base
Depreciation rate
Depreciation
Accumulated Depreciation
A
B
(68-2)
A*B
1
2013
66
10/55
0.181818
12
12
2
2014
66
9/55
0.163636
10.8
22.8
3
2015
66
8/55
0.145455
9.6
32.4
4
2016
66
7/55
0.127273
8.4
5
2017
66
6/55
0.109091
7.2
6
2018
66
5/55
0.090909
6
7
2019
66
4/55
0.072727
4.8
8
2020
66
3/55
0.054545
3.6
9
2021
66
2/55
0.036364
2.4
10
2022
66
1/55
0.018182
1.2
55
66
Straight line method
Figures in $
In millions
Year
Depreciation
Accumulated depreciation
(68-2)/10
1
2013
6.6
6.6
2
2014
6.6
13.2
3
2015
6.6
19.8
Year 2016
At the beginning of 2016, Irwin decided to change to the straight-line method.
1. Accumulated Depreciation A/c Dr. $ 12.6 million ($ 32.4 million - $ 19.8 million )
To Profit and loss A/c Cr. $ 12.6 million
2. Depreciation A/c Dr. $ 6.6 million
To Accumulated Depreciation A/c Cr. $ 6.6 million
Sum of years digit method
Figures in $
In millions
Year
Asset base
Depreciation rate
Depreciation
Accumulated Depreciation
A
B
(68-2)
A*B
1
2013
66
10/55
0.181818
12
12
2
2014
66
9/55
0.163636
10.8
22.8
3
2015
66
8/55
0.145455
9.6
32.4
4
2016
66
7/55
0.127273
8.4
5
2017
66
6/55
0.109091
7.2
6
2018
66
5/55
0.090909
6
7
2019
66
4/55
0.072727
4.8
8
2020
66
3/55
0.054545
3.6
9
2021
66
2/55
0.036364
2.4
10
2022
66
1/55
0.018182
1.2
55
66
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.