Equipment purchased for $39,000 by Escarpit Inc. on January 1, 2013 was originally estimated to have a five-year useful life with a residual value of $4,000. Depreciation has been recorded for the last three years based on these factors. In 2016, the asset’s condition was reviewed, and it was determined that the total useful life will likely be seven years and the residual value $5,000. The company uses straight-line depreciation.
a. Prepare the journal entry to correct the prior years’ depreciation.
b. Prepare the journal entry to record the 2016 depreciation