Question

Irwin, Inc., constructed a machine at a total cost of $45 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 $1 million. At the beginning of 2018, Irwin decided to change to the straight-line method.

Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (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 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
  

Answer:

Answer 1

Transaction	Accounts Title and Explanation	Debit	Credit
		($ in million)	($ in million)
1	Depreciation Expense	3.2
	Accumulated Depreciation		3.2
	(Being depreciation recorded for 2018)
	Workings:
	Total cost of Machine	=	45	million
Less:	Accumulated Depreciation till date as per sum of years digits method	=	21.6	million
	Remaining Value	=	23.4	million
Less:	Residual Value	=	1	million
	Amount to be depreciated	=	22.4	million
	Remaining useful life	=	7	years
	Depreciation as per Straight line method	=	3.2	million
	Accumulated Depreciation till date as per sum of years digits method
	{(10 + 9 + 8) / [(10 X(10+1) /2]} X [ $45 million - $1 million]
	[(27) / (55)] X ($44 million) = $21.6 million