Answer:
(a) Journal entries relating to depreciation for 2020 will be:
Debit Depreciation expense $3,408
Credit Accumulated depreciation $3,408
(To record the depreciation expense for 2020)
(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
(To record the disposal of machinery - September 1, 2021)
Step-by-step 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