On March 1, The Sneaker Company has purchased a new piece of machinery at a price of $40,000. Sneaker Company signed a note payable calling for monthly payments of $3,000 for 10 months plus interest at 12% on the unpaid balance. They also paid $10,000 in cash and traded in their old machinery. The old machinery was purchased at a cost of $30,000 and has current accumulated depreciation of $16,600. Trade in value, (fair value) of the old machinery is $13,000. The machinery is depreciated at $200 per month, and was last updated on December 31 of last year. Installation and freight charges for the new machine required an upfront payment of $4,600.

Instructions:

1.Make the journal entry to update depreciation.

2.Record the installation charges.

3.Prepare the journal entry to record the exchange of assets assuming that they are similar in nature (lack commercial substance).