Machinery purchased for $66,000 by Metlock Co. in 2016 was originally estimated to have a life of 8 years with a salvage value of $4,400 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 $4,950 at the end of that time. Assume straight-line depreciation.

Required:
a. Prepare the entry to correct the prior year's depreciation, if necessary.
b. Prepare the entry to record depreciation for 2021.

When an asset's useful life is extended, the extension is done prospectively, not retrospectively. This means that past depreciation does not need to be adjusted.

b. Prepare the entry to record depreciation for 2021.

Dr Depreciation expense 4,510
Cr Accumulated depreciation - machinery 4,510

Explanation:

purchase cost of machinery $66,000

estimated useful life 8 years

estimated salvage value $4,400

depreciation has been recorded using the previous basis during the first 5 years, but now the estimated useful life was extended to 10 years and the salvage value = $4,950

depreciation expense per year (during first 5 years) = ($66,000 - $4,400) / 8 = $7,700 per year

accumulated depreciation up to year 5 = $7,700 x 5 = $38,500

the carrying value of the asset on January 1, 2021 = $66,000 - $38,500 = $27,500

the new depreciation expense per year = ($27,500 - $4,950) / 5 = $4,510

depreciation expense for 2021:

Dr Depreciation expense 4,510

Cr Accumulated depreciation - machinery 4,510