Green Co. constructed a machine at a total cost of $81.70 million. Construction
ID: 2523809 • Letter: G
Question
Green Co. constructed a machine at a total cost of $81.70 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 $4.90 million. At the beginning of 2018, Green decided to change to the straight-line method.
Required:
1. Ignoring income taxes, what journal entry(s) should Green record relating to the machine for 2018?
2. Suppose Green has been using the straight-line method and switches to the sum-of-the-years’-digits method. Ignoring income taxes, what journal entry(s) should Green record relating to the machine for 2018?
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Journal entry worksheet Record the entry relating to the machine for 2018 using straight-line method Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journalExplanation / Answer
Depreciation Amount = Cost - Salvage Value = $ ( 81.70 - 4.90) million = $ 76.8 million
Depreciation already charged under the sum-of-the-digits method = ( 10 + 9 + 8) / 55 x $ 76.8 million = $ 37.70 million.
Annual depreciation for the remaining 7 years of the asset's life = $ ( 81.70 - 37.70 - 4.90) / 7 = $ 5.59 million.
In the books of Green Company:
Explanation for part 2. :
Accumulated depreciation after three years using straight line method = $ ( 81.70 - 4.90) / 10 x 3 = $ 23.04 million.
2018 depreciation expense under sum of the years digits method = $ ( 81.70 - 23.04 - 4.90) / 28 x 7 = $ 13.44 million.
Event Account Debit Credit $ ( millions) $ ( millions) 1. Depreciation Expense 5.59 Accumulated Depreciation : Equipment 5.59 2. Depreciation Expense 13.44 Accumulated Depreciation : Equipment 13.44Related Questions
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