Reference no: EM133152153

Question - Creative Inc. purchased a new manufacturing equipment on April 30, 2020, by trading in its old model and paying the balance in cash. The following data relate to the purchase:

List price of new equipment $31,600,

Cash paid 20,000,

Cost of old equipment (five-year life, $1,400 residual value) 22,400,

Accumulated depreciation on old equipment (straight-line) 12,600,

Market value of old equipment in active secondary market 10,400.

Assuming that Creative Inc.'s fiscal year ends on December 31 and depreciation has been recorded through December 31, 2019, prepare the journal entry(ies) that are necessary to record this exchange. Give reasons for the accounting treatment you used.