1. Irwin, Inc., constructed a machine at a total cost of $58 million. Constructi

Question

1. Irwin, Inc., 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 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 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

2. In 2015, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 6% of sales revenue. First-year sales of the heaters were $310,000. An evaluation of the company’s claims experience in late 2016 indicated that actual claims were less than expected—5% of sales rather than 6%.

Assuming sales of the heaters in 2016 were $360,000 and warranty expenditures in 2016 totaled $16,000, what is the 2016 warranty expense?

3. Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $12.60 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2012. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2016 (before adjusting and closing entries).

What is the appropriate adjusting entry for patent amortization in 2016 to reflect the revised estimate.

1. Irwin, Inc., 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 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2016, Irwin decided to change to the straight-line method.

Explanation / Answer

Question 1

Depreciation expense Dr. 4

Accumulated depreciation Cr. 4

((58-((10+9+8)/55*(58-3))-3)/7=4

Instead of 4 (in millions) if required you can write 4000000

Question 2

Warranty expense - 18000

(360000*5%)

Question 3

Amortization expense Dr. 3.5

Expense Cr. 3.5

(12.60-(12.60/9*4))/(6-4)

Instead of 3.5 (in millions) if required you can write 3500000

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