Question

Problem 20-4A (Part Level Submission) Last year (2016), Richter 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 $90,000 New Elevator $161,000 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 $35,300 24,000 $10,000 8,300 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, Richter Condos will be able to sell it for $26,000

Answer 1

Refer the below images for the above mentioned questions, in a detailed way of solution.

Solution : a Determine any gain con loss if replaced : the old elevator is 998000 Cost Less - Accomolated =919600 * $ 99000 (19600 * ruears syears depreciation Book value Sale proceeds loss on sale $78400 5 (26000) $53400 LAPPETIT b) ) Ancont 8964000 Retain and elevator : Revenues (92410004 a years) (osts variable costs (936300x 4 years) $141200 fixed cost ( 24000 + 4years) $ 96000 Selling by admin (428000 x 4 years) & 11.2000 Depreciation ($98000 + 4 years) 978400 Net income (427600) $536400 2) Amount 964000 Less Replace old elevator : Revenues ($24100044) costs: variable costs (a toooo tu year) & 40000 fixed costs ($8300 4 4 years) $33200 selling & admin ($26000 x 4 years) $ 112000 Depreciation ($ 161000 x years) & 161000 operating income LESS - Loss on old elevator $ 1346200) $617800 4652400) Net income $565400

HERRE R ELLA particolars Retain old elevator Replace old elevator Net income Increase (Decrease) $ 40000 $14,200 & 96000 Variable operating costs Fixed operating costs New elevator Cost Salvage on old elevator $ 33200 & 161000 f (26000) 101200 $ 62800 $ (161000) † 26000 Totals - $237200 $208200 29000