Orange Corp.constructed a machine at a total cost of $70 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 sum-of-the-years'-digits method.The residual value is expected to be $4 million.At the beginning of 2016,Orange decided to change to the straight-line method.Ignoring income taxes,what will be Orange's depreciation expense for 2016?
A)$4.8 million.
B)$5.4 million.
C)$6.6 million.
D)$9.4 million.

Question

Quizplus · Accepted Answer

The correct answer is A.The depreciation expense for 2016 using the straight-line method is $6.6 million. The total depreciable cost is $70 million - $4 million = $66 million. The straight-line depreciation rate is 1/10 = 10%. The depreciation expense for 2016 is $66 million x 10% = $6.6 million.