Machinery purchased for $61,800 by Swifty Co. in 2016 was originally estimated to have a life of 8 years with a salvage value of $4,120 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 $4,635 at the end of that time. Assume straight-line depreciation. Prepare the entry to correct the prior years' depreciation, if necessary

Before preparing the journal entry, we need to do some calculations which are shown below:

The computation of the depreciation expense under the straight line method is shown below:

= (Original cost - residual value) : (useful life)

= ($61,800 - $4,120) : (8 years)

= ($57,680) : (8 years)

= $7,210

In this method, the depreciation is same for all the remaining useful life

The net book value would be

= Original cost - depreciation expense * number of years

= $61,800 - $7,210 * 5

= $61,800 - $36,050

= $25,750

Now the accumulated depreciation would be

= (Net book value - salvage value) : number of years

= ($25,750 - $4,635) : 5 years

= $4,223

The journal entry would be

Depreciation expense A/c Dr $4,223

To Accumulated depreciation A/c $4,223

(Being the accumulated depreciation is recorded)