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    Accounting

    Problem 20-04A a-c

    At the beginning of last year (2019), 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 companys accountant to provide him with cost data on the companys elevator. This information is presented below.
    Old Elevator New Elevator
    Purchase price $98,500 $161,000
    Estimated salvage value 0 0
    Estimated useful life 5 years 4 years
    Depreciation method Straight-line Straight-line
    Annual operating costs
    other than depreciation:
    Variable $35,000 $11,000
    Fixed 22,800 9,000
    Annual revenues are $240,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for $25,700.
    Determine any gain or loss if the old elevator is replaced.

    Loss on saleGain on sale

    		 $

    LINK TO TEXT

    LINK TO VIDEO
    Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained.
    Retain Old Elevator
    Revenues $

    Less costs:
    Variable costs $

    Fixed costs

    Selling & administrative

    Depreciation

    Net income $

    (2) The old elevator is replaced.
    Replace Old Elevator
    Revenues $

    Less costs:
    Variable costs $

    Fixed costs

    Selling & administrative

    Depreciation

    Operating income

    Loss on old elevator

    Net income $

    LINK TO TEXT

    LINK TO VIDEO
    Using incremental analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).)
    Retain Old Elevator Replace Old Elevator Net Income Increase (Decrease)
    Variable operating costs $

    		$

    		$

    Fixed operating costs

    New elevator cost

    Salvage on old elevator

    Totals $

    		$

    		$

    The old elevator

    shouldshould not

    be replaced.

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