Question

Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for \(5,200 instead of \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.

Short answer

There is a loss of $4,800 on disposal of the machine.

Step-by-step solution

Updating depreciation

Depreciation per year = $2,400

The time period from last accumulated depreciation date till sale = 8 months

$$\begin{gathered} \mathbf{\text{Depreciationexpensefortheperiod}}\mathbf{=}\frac{\mathbf{\text{Peryeardepreciation}}}{\mathbf{12}}\mathbf{\times }\mathbf{\text{No.ofperiod}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}}{\mathbf{12}}\mathbf{\times }\mathbf{8} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600} \end{gathered}$$

Journal Entry

Date	Description	Debit	Credit
1, Sept, 2018	Depreciation Expense	$1,600
	Accumulated Depreciation		$1,600
	Being depreciation updated

$$\begin{gathered} \mathbf{\text{Totalaccumulateddepreciation}}\mathbf{=}\mathbf{\text{Lastaccumulateddepreciation}}\mathbf{+}\mathbf{\text{Updateddepreciation}} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600} \\ \mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{000} \end{gathered}$$

Recording of sale

Journal Entry

Date	Description	Debit	Credit
1, Sept, 2018	Cash	$5,200
	Accumulated Depreciation	$10,000
	Loss on sale of the machine (balancing figure)	$4,800
	Machine		$20,000
	Being old machine disposed