In: Accounting

CH 20; Irwin, Inc., constructed a machine at a total cost of $59 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 $3 million. At the beginning of 2016, Irwin decided to change to the sum-of-the-years’-digits method. |

Ignoring income taxes, prepare the journal entry relating to the
machine for 2016. |

Record the entry relating to the machine for 2016 |

**Solution**

**Journal entry:**

Date |
Particulars |
Post Ref |
Debit ($ in million) |
Credit ($ in million) |

Depreciation expense | $9.8 | |||

Accumulated depreciation | $9.8 | |||

(To record adjusting depreciation entry) |

**Working Notes:**

Depreciation = ((Cost of asset - Residual value)/Life of
asset)

=($59 million - $3 million)/10 years

=5.6 million

Depreciation =Annual depreciation*Number of years

=$5.6 million * 3 years

= $16.8 million

Compute depreciable value of machine at beginning of 4th years
as give below:

Depreciable value = Original value - Depreciation for 3 years -
Salvage value

= $59 million - $16.8 million -$3 million

=$39.2 million

Compute depreciation under sum of years digit method for 4th
year as given below:

Depreciation = Depreciable value of asset*(remaining life of
asset/Sum of number of years in life of asset)

=39.2 million*(7years/1+2+3+4+5+6+7)

=39.2 million*(7/28)

=9.8 million

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