Red Corp. constructed a machine at a total cost of $58 million. Construction was

Question

Red Corp. constructed a machine at a total cost of $58 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 straight-line method. The residual value is expected to be $4 million. At the beginning of 2016, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2016? (Do not round intermediate calculations. Round final answer to 2 decimal places.)

  

a)$6.00 million.

b)$10.29 million.

c)$4.47 million.

d)$3.80 million.

Red Corp. constructed a machine at a total cost of $58 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 straight-line method. The residual value is expected to be $4 million. At the beginning of 2016, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2016? (Do not round intermediate calculations. Round final answer to 2 decimal places.)

Explanation / Answer

Depreciation per annum under straight line method = (Cost of Machine- Residual Value) / Life of the Machine

=$(58-4) Million / 9years

=$6Million per Annum.

Sum of the Years digit Method,Depreciation= Depreciable value * No of estimated balance use ful life in years/(n(n+1))/2

Depreciable value = 54-18 = $36Million

Option b)$10.29 Million is depreciation expense for 2016

  

Year Depreciable value Factor Depreciation 2016 36 6/21 10.29 2017 36 5/21 8.57 2018 36 4/21 6.86 2019 36 3/21 5.14 2020 36 2/21 3.43 2021 36 1/21 1.71

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.