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    Change in Accounting Method

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    Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2007 and the machine was placed in service at the beginning of 2008. The machine was being depreciated over a 10-year life using the straight-line method. The residual value was expected to be $4 million.

    At the beginning of 2011, Red decided to change the depreciation to the double-declining balance method. The residual value remains at $4 million.

    Ignoring income taxes, what will be Red's depreciation expense for 2011?

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    Solution Summary

    This solution illustrates how to compute the depreciation expense in the year in which a company changes its accounting method. It also illustrates how to compute depreciation using the straight-line and double-declining balance methods.