Question

Irwin, Inc., constructed a machine at a total cost of $47 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 $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method.

Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

Depreciation expense	3.2
Accumulated depreciation		3.2
Workings:
Sum-of-the-years’-digits = 10*(10+1)/2= 55
Sum-of-the-years’-digits for first 3 years = 10+9+8=27
Asset’s cost	47
Less: Accumulated depreciation to date	21.6		=(47-3)/55*27
Book value	25.4
Less: Residaul value	3
Depreciable cost	22.4
Remaining useful life	7
Annual straight-line depreciation	3.2