Pooh Inc. constructed a machine at a total cost of $70 million. Construction was
ID: 2477855 • Letter: P
Question
Pooh Inc. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2011 and the machine was placed in service at the beginning of 2012. The machine was being depreciated over a 10-year life using the sum-of-the-year's-digits method. The residual value will not change from the original $4 million. At the beginning of 2015, Pooh decided to change to the straight-line method. Required: 1. Ignoring income taxes, what journal entry(s) should Pooh record relating to the machine for 2015? 2. Suppose Pooh has been using the straight-line method and switches to the sum-of-the-year's-digits method. Ignoring income taxes, what journal entry(s) should Pooh record relating to the machine for 2015?Explanation / Answer
(1)
Depreciation A/c DR $6,600,000
To accumulated Depreciation A/c $6,600,000
(Being depreciation the straight-line method provided has recorded)
2014 calculation
straight line method are uniform = Original Cost - Scrap value / Useful life of asset.
=$70 million. - $4 million / 10
=$66 million/ 10 = $6,600,000
Depreciation A/c DR $16,500,000
To accumulated Depreciation A/c $16,500,000
(Being depreciation the sum of digit method provided has recorded)
sum of digit method calculation:
Original Cost - Scrap value
=$70 million. - $4 million =$66 million
$66,000,000 * 7/28=$16,500,000
already they used 2011, 2012,2013, =3 years out of 10 years = 7 years balance
7+6+5+4+3+2+1=28