Question

Please help me fill these out. The scenario is as follows.

Last year (2016), Cheyenne 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.
Last year (2016), Cheyenne 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 New Elevator $161,000 $103,000 Purchase price Estimated salvage value Estimated useful life 5 years Straight-line 4 years Straight-line Depreciation method Annual operating costs other than depreciation: Variable $35,300 22,100 $10,000 8,800 Fixed Annual revenues are $240,000, and selling and administrative expenses are $30,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2017, Cheyenne Condos will be able to sell it for $25,000. Determine any gain or loss if the old elevator is replaced. Loss on sale 79800

Answer 1

Depreciation on old Elevator = (Purchase Price - Salvage Value) / life of asset = ($103,000 - 0)/5 = $ 20,600.00 Value of Old elevator After Depreciation = $ 103,000 - $ 20,600 = $ 82,400.00 Selling Price of Old elevator = $ 25,000.00 Loss on sale of Old elevator = $ 82400 - $25000 = $ 57,400.00 Depreciation on New Elevator = ($161,000 - 0) / 4 = $ 40,250.00 Solution (1) The Old elevator is retained $ 9,60,000.00 Revenues ($240,000 x 4 years) Less costs: Variable costs $ 35300 x 4) Fixed Costs ($ 22100 x 4) Selling & Aministrati ($ 30000 x 4) Depreciation ($ 20600 x 4) $1,41,200.00 $ 88,400.00 $1,20,000.00 $ 82,400.00 $ 4,32,000.00 Net Income $ 5,28,000.00 Solution (2) The Old elevator is replaced $ 9,60,000.00 Revenues ($240,000 x 4 years) Less costs: Variable costs $ 10000 x 4) Fixed Costs ($ 8800 x 4) Selling & Aministrati ( $ 30000 x 4) Depreciation ($ 40250 x 4) Operating Income Less: Loss on Old elevator $ 40,000.00 $ 35,200.00 $1,20,000.00 $1,61,000.00 $ 3,56,200.00 $ 57,400.00 Net Income $ 5,46,400.00

Incremental Analysis Particulars Variable Operating costs Fixed Operating costs New elevator Cost Salvage on Old elevator Totals Retain Old Replace Old Net Income Elevator Elevator Increase $ 1,41,200.00 $ 40,000.00 $ 1,01,200.00 $ 88,400.00 $ 35,200.00 $ 53,200.00 $1,61,000.00 $ -1,61,000.00 $ -25,000.00 $ 25,000.00 $ 18,400.00

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