Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $8,000 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid $8,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand market value of $47,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $1,100.

Instructions

(a) Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance.

(b) Assume the same facts as in (a) except that the exchange lacks commercial substance. Prepare the general journal entry to record this transaction.