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20 April, 00:44

Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2020. The machinery is sold on September 1, 2021, for $10,500. Prepare journal entries to (a) update depreciation for 2021 and (b) record the sale.

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  1. 20 April, 01:58
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    The journal entries are as follows:

    (a) update depreciation for 2021

    Depreciation expense A/c Dr. $1,600

    To accumulated depreciation - machinery $1,600

    (To record the depreciation on machinery till the date of sale)

    Workings:

    Depreciation expense:

    = Depreciation for the year * [ (number of month till the date of sale) : 12 months]

    = $2,400 * [ (8 months) : 12 months]

    = $1,600

    (b) Record the sale

    Cash A/c Dr. $10,500

    Accumulated depreciation - machinery A/c Dr. $10,000

    To machinery $20,000

    To gain on sale of machinery $500

    (To record the sale of machinery)

    Workings:

    Accumulated depreciation as on 01/09/2021:

    = Beginning balance + depreciation for the year 2021

    = $8,400 + $1,600

    = $10,000

    Gain on sale of machinery:

    = sale value of machinery - Book value of machinery

    = $10,500 - (20,000 - 10,000)

    = $10,500 - 10,000

    = $500
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