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24 May, 01:01

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

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  1. 24 May, 04:54
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    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)
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