Question

Irwin, Inc., constructed a machine at a total cost of $23 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.

Answer 1

Please note that all amount expressed in millions dollars.

Cost of Assets	$    23.00
Less: Estimated residual value	$       3.00
Depreciable cost	$    20.00
Divided by: useful life	$    10.00
Depreciating Expense	$       2.00
Depreciating Expense for the year 2013	$       2.00
Depreciating Expense for the year 2014	$       2.00
Depreciating Expense for the year 2015	$       2.00
Accumulated depreciation on Dec 31, 2015	$       6.00

Cost of Assets	$    23.00
Less: Accumulated depreciation on Dec 31, 2015	$       6.00
Book value of Assets on Jan 1, 2016	$    17.00
Less: Estimated residual value	$       3.00
Remaining depreciable cost (For Next 7 Year)	$    14.00

Year	Number of Year remaining	Multiply: Depreciation rate	Depreciation expense
2016	7	7/28	$       3.50
2017	6	6/28	$       3.00
2018	5	5/28	$       2.50
2019	4	4/28	$       2.00
2020	3	3/28	$       1.50
2021	2	2/28	$       1.00
2022	1	1/28	$       0.50
Total	28

Journal entries
Date	General Journal	Debit	Credit
Dec 31, 2016	Depreciation expense	$       3.50
	Accumulated depreciation		$       3.50

(Hint: Change in depreciation method is considered a change in accounting estimate, no journal entry required on date of a change in depreciation method. But depreciation Expense entry should be required to record.)