Question

Green Co. constructed a machine at a total cost of $63.50 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 $3.50 million. At the beginning of 2016, 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 2016? (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 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Answer 1

year	depreciation expense	Book value
0	0	63.5
2013	10.9	52.6
2014	9.82	42.78
2015	8.73	34.05
2016	4.36	29.69
2017	4.36	25.33
2018	4.36	20.97
2019	4.36	16.61
2020	4.36	12.25
2021	4.36	7.89
2022	4.36	3.53

Sum-of-the-years'-digits

Depreciation rate = n(n+1)/2

= 10 (10+1) / 2

= 55

where, n = estimated life

rate of depreciation for 1st year is 10/55 of 60, for 2nd year is 9/55 of 60 and so on. For 10th year it is 1/55.

straight line method from 2016

depreciation = book value at 2015 - salvage value / remaining useful life

= 34.05 - 3.5 / 7

= 4.36 (each year)

Journal entries in 2016
Account	Debit	Credit
Depreciation expense	4.36
Machinery		4.36