Question

Problem 12-4 (Part Level Submission) Last year (2016), Riverbed Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This information is presented below. Old Elevator $100,000 New Elevator $160,000 5 years Straight-line 4 years Straight-line Purchase price Estimated salvage value Estimated useful life Depreciation method Annual operating costs other than depreciation: Variable Fixed $34,700 24,000 $9,000 8,100 Annual revenues are $241,000, and selling and administrative expenses are $28,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2017, Riverbed Condos will be able to sell it for $25,600.

Answer 1

a) Depreciation on old elevator ($100,000-$0)/5 Depreciation on old elevator $20,000 Book value of old elavator $100,000-$20,000 $80,000 Sale value $25,600 Loss on sale $80,000-$25,600 Loss on sale - $54,400 b) Depreciation on new elevator ($160,000-$0)/4 Depreciation on new elevator $40,000

A B C (1) The old elevator is retained. 1 Retain Old Elevator 2 $964,000 3 Revenues 4 Less costs: Variable costs $ 138,800 5 $ 96,000 $ 112,000 $ 80,000 $426,800 $ 537,200 Fixed costs 6 Selling & administrative 7 8 Depreciation 9 Net income 10 11 (2) The old elevator is replaced: Replace Old Elevator $ 964,000 12 13 Revenues 14 Less costs: 15 Variable costs $ 36,000 $ 32,400 $ 112,000 $ 160,000 $340,400 $623,600 $ 54,400 $ 569,200 Fixed costs 16 Selling & administrative 17 18 Depreciation 19 Net income 20 Less: Loss on old elevator 21 Net income LO

A В C 1 (1) The old elevator is retained. Retain Old Elevator 2 3 Revenues 4 Less costs: - 241000*4 - 34700*4 Variable costs 5 Fixed costs -24000*4 6 - 28000*4 Selling & administrative 7 - 20000*4+B5+B6+B7+B8 Depreciation 9 Net income |3+с3-C8 10 11 (2) The old elevator is replaced: Replace Old Elevator -241000*4 12 13 Revenues 14 Less costs -9000*4 15 Variable costs -8100*4 -28000*4 -40000 4 B15+B16+B17+B18 Fixed costs 16 Selling & administrative 17 18 Depreciation 19 Net income |Енс13-с18 54400 20 Less: Loss on old elevator +C19- C20 21 Net income LO.