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Vadim26 [7]
3 years ago
7

Bonita Corporation owns machinery that cost $28,400 when purchased on July 1, 2017. Depreciation has been recorded at a rate of

$3,408 per year, resulting in a balance in accumulated depreciation of $11,928 at December 31, 2020. The machinery is sold on September 1, 2021, for $14,910.
Prepare journal entries to (a) update depreciation for 2020 and (b) record the sale.
Business
1 answer:
lana66690 [7]3 years ago
4 0

Answer:

(a) Journal entries relating to depreciation for 2020 will be:

Debit Depreciation expense                                      $3,408

Credit Accumulated depreciation                              $3,408

<em>(To record the depreciation expense for 2020)</em>

(b) Journal entries to record the sale transaction will be:

Debit Accumulated depreciation (machinery)            $14,200

Debit Cash (proceed)                                                    $14,910

Credit Property, plant and machinery (machinery)    $28,400

Credit Gain on disposal                                                     $710

<em>(To record the disposal of machinery - September 1, 2021)</em>

Explanation:

(a) Update of depreciation for 2020 by way of journals means to record the depreciation charge for that year. The yearly depreciation expense was calculated as $3,408, so simply record it with the above journals.

(b) The date of disposal is September 1, 2021. Despite the fact that depreciation had already been charged for 3.5 years at December 31, 2020, we still have to charge the depreciation for the year of disposal, i.e., 8 months as $3,408/12 x 8 months = $2,272. Accumulated depreciation for 4.3 years (July 1, 2017 - September 1, 2021) as at September 1, 2021 will be $11,928 + $2,272 = $14,200, resulting in net book value (NBV) of the machinery as $28,400 - $14,200 = $14,200 (Cost - Accumulated depreciation).

Gain or loss on disposal = Sales proceeds - NBV; positive result is a gain, while negative result is a loss.

Gain or loss on disposal =  $14,910 - $14,200 = $710

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