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.

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