Machinery purchased for $63,000 by Concord Co. in 2016 was originally estimated to have a life of 8 years with a salvage value of $4,200 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2021, it is determined that the total estimated life should be 10 years with a salvage value of $4,725 at the end of that time. Assume straight-line depreciation.

Required:

1. Prepare the entry to correct the prior years' depreciation, if necessary.

2. Prepare the entry to record depreciation for 2021.

Correction entry.

1. Credit accumulated depreciation $7612.50

Debit Asset/machinery $7612.50

2. Credit Asset / Machinery $5827.5

Debit Accumulated depreciation $5827.50

Explanation:

Cost of machine = $63000

Useful life = 8yrs

Salvage value = $ 4200

Depreciable amount on this basis $ (63000-4200) = 58800

Annual depreciation = 58800/8 = 7350

5yrs depreciation = 7350 * 5=$36750.

Revised Useful life - 10yrs

Revised Salvage value = $4725

Revised depreciable amount = $58275

Annual depreciation = 58275/10 = $5,827.50

5yrs depreciation = $29,137.50

Difference in accumulated depreciation = $36750-$29137.5

$7612.50