Question

On January 2, 2019, Twilight Hospital purchased a $104,400 special radiology scanner from Bella Inc. The scanner had a useful life of 4 years and was estimated to 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 $106,000.

Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2019 from Bella Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $110,000 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. Jacob agrees to buy the old scanner from Twilight Hospital for $55,500.

Partially correct answer iconYour answer is partially correct.

If Twilight Hospital sells its old scanner on January 2, 2020, compute the gain or loss on the sale.

Choose your answer here                                                                      Gain on saleLoss on sale

$Type your answer here

Prepare an incremental analysis of Twilight Hospital. (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. -45 or parentheses e.g. (45).)

		Retain Scanner		Replace Scanner		Net Income Increase (Decrease)
Annual operating costs		$		$		$
New scanner cost
Old scanner salvage
Total		$		$		$

Should Twilight Hospital purchase the new scanner on January 2, 2020?

                                                                      YesNo

Answer 1

Answer:
1)
Cost	$ 104,400
Less: Depreciation                = Cost(-) Salvage Value / Useful life                     =   $ 104,400 (-) $ 0 / 4 Years                     = $ 26,100	($ 26,100)
Book Value	$ 78,300
Loss on Sale          = Sale Value (-) Book Value           =   $ 55,500 (-) $ 78,300	$ 22,800
Incremental analysis of Twilight Hospital
	Retain Scanner	Replace Scanner	Net Income Increase (Decrease)
Annual operating costs	$ 318,000 ( $ 106,000 x 3 Years )	$ 243,000 ( $ 106,000 (-) $ 25,000 ) x 3	$ 75,000
New scanner cost	0	$ 110,000	($ 110,000)
Old scanner salvage	0	($ 55,500)	$ 55,500
Total	$ 318,000	$ 297,500	$ 20,500
Yes, Twilight Hospital Should purchase the new scanner