Brief Exercise 10-14 Riverbed Corporation owns machinery that cost $30,000 when

Question

Brief Exercise 10-14 Riverbed Corporation owns machinery that cost $30,000 when purchased on July 1, 2014. Depreciation has been recorded at a rate of $3,600 per year, resulting in a balance in accumulated depreciation of $12,600 at December 31, 2017. The machinery is sold on September 1, 2018, for $15,750 Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale. (Credit account tities are automatically Indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) No. Account Titles and Explanation Debit Credit

Explanation / Answer

Depreciation for the year 2018 (Till September 1 that is 8 months)

= Yearly depreciation x Months used / 12 months

= $3,600 x 8 / 12

= $ 2,400

So, balance in accumulated depreciation account on date of sale

= Balance in accumulated depreciation account on 1st January 2018 + Depreciation for the year

= $12,600 + $2,400

= $ 15,000

So, book value of machinery on date of sale

= Purchase cost – Accumulated depreciation

= $30,000 - $15,000

= $15,000

Profit on sale of machinery

= Sales value – Book value

= $15,750 - $15,000

= $ 750

Journal entries

a)

Depreciation    $2,400

    Accumulated Depreciation    $2,400

(Being depreciation charged for 8 months on machinery)

b)

Accumulated depreciation    $15,000

Bank                                           $15,750

    Machinery                                   $30,000

  Profit on sale of machinery           $750

(Being machinery sold at a profit)

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