Question

Exercise 7.25 a-b On January 2, 2019, Riverside Hospital purchased a $101,000 special radiology scanner from Fatal Inc. The scanner has a useful le of five years and will have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner Annual operating costs with this scanner are $104.000 Approximately one year later, the hospital is approached by Alliant Technology salesperson in Soon, who indicates that purchasing the scanner in 2019 from Fatal was a mistake. She points out that Nliant has a scanner that will save verside Hospital $25,800 a year in operating expenses over its four year useful . She notes that the new scanner will cost $119,500 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Alliant agrees to buy the old scanner from Riverside Hospital for 560,400. Assume Riverside Hosptal sells its old scanner on January 2, 2020. Calculate the gain or loss on the sale. It Riverside Hospital sells its old scanner it incurs a Using incremental analysis, determine whether Riverside Hospital should purchase the new scanner on January 2, 2020. (If an amount reduces the net income then enter with a negative sin preceding the number : 15,000 or parenthesis (15,000).) Net Income Increase (Decrease) Retain Scanner Replace Scanner Operating cost New scanner cost Old scanner salvage Total Riverside Hospital purchase the new scanner. Question Attempts: 0 of 2 used SAVE POR LATER SUBMIT ANSWER

Answer 1

Answer is given below.

If Riverside Hospital sells its old scanner it incurs a loss of $20,400 Purchase cost Depreciation for year 1 Net Book value Sale value Net loss $101,000 $20,200 ($101,000)/5 years) $80,800 $60,400 $20,400 Incremental Analysis Retain Scanner $416,000 Operating cost New Scanner cost Old Scanner salvage Replace Net Income Scanner Increase (Decrease) $312,800 $103,200 $119,500 -$119,500 -$60,400 $60,400 $371,900 $44,100 Total $416,000 Riverside Hospital should purchase the new scanner