Bridgeport Corporation owns machinery that cost $24,000 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $2,880 per year, resulting in a balance in accumulated depreciation of $10,080 at December 31, 2020. The machinery is sold on September 1, 2021, for $12,600. Prepare journal entries to (a) update depreciation for 2021 and (b) record the sale.

Bridgeport Corporation

Journal Entries:

a) Update Depreciation for 2021:

Debit Depreciation Expense $1,920

Credit Accumulated Depreciation $1,920

To record depreciation expense, up to September 1, 2021.

b) Record the sale:

Debit Sale of Machinery $24,000

Credit Machinery $24,000

To record sale of machinery.

Debit Accumulated Depreciation $12,000

Credit Sale of Machinery $12,000

To record the sale of machinery.

Debit Cash Account $12,600

Credit Sale of Machinery $12,600

To record the cash received on sale.

Debit Gain from Sale of Machinery $600

Credit Income Statement $600

To record the gain from sale of machinery.

Explanation:

a) Data and Calculations:

Cost of machinery on July 1, 2017 = $24,000

Depreciation per year = $2,880

Accumulated Depreciation = $10,080 at December 31, 2020

Depreciation for 2021 = $2,880 * 8/12 = $1,920 (up to September 1, 2021)

Accumulated Depreciation at September 1, 2021 = $ 12,000 ($10,080 + 1,920)

b) The book value of the machinery will be $12,000 on September 1, 2021.  A gain on disposal amounting to $600 ($12,600 - $12,000) is realized from the sale.

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