Green Co. constructed a machine at a total cost of $60.90 million. Construction was completed at...

Green Co. constructed a machine at a total cost of $60.90 million. Construction was completed at the end of 2017 and the machine was placed in service at the beginning of 2018. 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 $3.30 million. At the beginning of 2021, 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 2021?
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 2021?

Expert Solution

1. Sum of year digit method changed to Straight line method

Cost of Machine = $60.90 Million
Residual value = $3.30 milion
Depriciable value = $57.6 1Million

Depriciation as per Summ of year Digit Method = Depriciable value/total of Digits*Digit of the year

Year	Digit	Depreciation
2018	1	1.05
2019	2	2.09
2020	3	3.14
2021	4
2022	5
2023	6
2024	7
2025	8
2026	9
2027	10

Total	55	6.28


Depreciable value at beginning of 2021 = $57.6 Million - 6.28Million = $51.32 million

Remaining Life of Machine = 7 Years

Now Depriciation for 2021 = $51.32 /7 = 7.33 Million

Journal Entry
Depreciation A/c Debit	7.33 Million
Machine Account Credit	7.33 Million

2. If Straight line mmethod changed to Sum of year digit Method

Depriciable Value of Machine = 57.6 Million

Depriciation Per Year in SLM Method = 57.6/10 = 5.76 Million

Depriciation upto 2020 = 5.76*3 = 17.28

Depriciable amount at beginning of 2021 = 57.6-17.28 = 40.32

Year	Digit
2021	1
2022	2
2023	3
2024	4
2025	5
2026	6
2027	7

	28

Depriciation for 2021 = 40.32*1/28= $1.44 Million

Journal Entry

Depriciation Account debit	1.44 mimlliom
Machine Account Credit	1.44 mimlliom

ekkarill92 answered 1 year ago

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