Delphina has decided that its production and sales for the Eastern Canada area would be more efficient and effective if the company transferred all of its assets in that region to Irwin Corporation, an unrelated Halifax-based company. Delphina has negotiated to sell the assets to Irwin Corporation for $1,250,000, effective 1 December 2020. The equipments current book value is $900,000. Effective 2 January 2021, Irwin Corporation will produce Delphinas products and also will maintain the inventory. Irwin will manage the sales force for the eastern region, although all sales and accounts receivable will continue to be invoiced and collected by Delphina. Delphina will reimburse Irwin Corporation for the cost of production and direct sales expense plus 50% of the gross margin.

Explain fully how this modernization and reorganization event should be accounted for by Delphina. To the extent possible, specify the numerical effect on Delphinas income statement and SFP for 2020 and address the managers worries that the bank may reduce the line of credit.