Red Corp. constructed a machine at a total cost of $80 million. Construction was

Question

Red Corp. constructed a machine at a total cost of $80 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 straight-line method. The residual value is expected to be $6 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.) $5.39 million. $12.95 million. $6.24 million. $7.40 million.

Explanation / Answer

what will be Red's depreciation expense for 2016?

Straight line dep = (80-6)/10 = 7.4 per year

2013 To 2015 dep = 7.4*3 = 22.2

Sum of year digit = (7+6+5+4+3+2+1) = 28

Depreciable base = (80-6-22.2) = 51.8

2016 dep = 51.8*7/28 = 12.95

so answer is b) $12.95 million

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