Green Co. constructed a machine at a total cost of $70 million. Construction was completed at...

Green Co. constructed a machine at a total cost of $70 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 $4 million. At the beginning of 2018, 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 2018?
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 2018?

Journal entry

1. Record the entry relating to the machine for 2018 using straight-line method

2. Record the entry relating to the machine for 2018 using sum-of-the year's digits method

Expert Solution

Particulars	$
cost of Asset	$70
Accumulated Depreciation to date	($32.40)
Un depreciated cost	$37.60
Estimated residual value	($4)
To be depreciated over remaining 7 years	$33.60
	7 years
Annual straight line depreciation [2018-2024]	$4.80

Working note:

Calculation of sum of year digit depreciation:

[10+9+8]/55 * [$70-$4] million = 27/55 [$66 million] = $32.4 million

Green changes the method of depreciation prospectively which means previous year financial year statements are not required to revise.

Calculation of straight line depreciation to date:

[$70million - $ 4 million] /10 * 3 =$19.8 Million

Particulars	$
cost of Asset	$70
Accumulated Depreciation to date	($19.80)
Un depreciated cost	$50.20
Estimated residual value	($4)
To be depreciated over remaining 7 years	$46.20

Calculation of sum of year’s digit depreciation:

$46.20*7/28 = $11.55 million

General Journal	Debit	credit
Depreciation expense	$11.55
Accumulated depreciation		$11.55

ekkarill92 answered 1 year ago

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