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 New Elevator Purchase price $98,500 $159,000 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 $34,400 $11,000 Fixed 22,400 8,600 Annual revenues are $240,000, 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 $24,700. Collapse question part (a) Correct answer. Your answer is correct. Determine any gain or loss if the old elevator is replaced. Entry field with correct answer Loss on sale $Entry field with correct answer 54100 Click if you would like to Show Work for this question: Open Show Work SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 1 of 3 used Collapse question part (b) 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 Less: Loss on old elevator Net income $

Answer 1

(a)	Loss if the old elevator is replaced:
	Cost			98,500
	Less: Accumulated depreciation
	(98,500/5)			19,700
	Book value			78,800
	Less: Sales proceeds			24,700
	Loss on sale			54,100

(b)	1	Retain old elevator		Amount $	Amount $
	Revenues	(240,000*4)			960,000
	Less: costs
	Variable costs		(34,400*4)	137,600
	Fixed costs		(22,400*4)	89,600
	Selling and administrative		(28,000*4)	112,000
	Depreciation		(98,500/5)*4	78,800	418,000
	Net income				542,000

	2	Replace old elevator		Amount $	Amount $
	Revenues	(240,000*4)			960,000
	Less: costs
	Variable costs		(11,000*4)	44,000
	Fixed costs		(8,600*4)	34,400
	Selling and administrative		(28,000*4)	112,000
	Depreciation		(159,000/4)*4	159000	349,400
	Operating income				610,600
	Less: Loss on old elevator				54,100
	Net income				556,500