10-Red Corp. constructed a machine at a total cost of $54 million. Construction was completed at...

10-Red Corp. constructed a machine at a total cost of $54 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 11-year life using the straight-line method. The residual value is expected to be $3 million. At the beginning of 2018, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2018? (Do not round intermediate calculations. Round final answer to 2 decimal places.)

Multiple Choice

$4.64 million.

$8.24 million.

$4.05 million.

$3.68 million.

Expert Solution

Answer : 8.24 million

Straight line method Depreciation

Depreciation	=	(Cost -Salvage value)/Useful life
	=	(54-3)/11
	=	$ 4.63636363636364	million

Depreciation From 2015 to 2017	=	(4.63636363636364)*3
	=	$ 13.9090909090909	million

Book value as on beginning of 2018	=	Cost- accumulated depreciation
	=	54-13.909209091
	=	$ 40.0909090909091	million

Sum of Years digits method

Depreciation	=	Depreciable cost x Remaining usefulife/Sumof the years digits
	=	(40.0909090909091-3)*(8/36)
	=	$ 8.24	million

For any clsrifications please comment

ekkarill92 answered 2 years ago

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