AE7-13 (a,b) On January 2, 2011, Kinnaird Hospital purchased a $99,350 special r
ID: 2347594 • Letter: A
Question
AE7-13 (a,b)
On January 2, 2011, Kinnaird Hospital purchased a $99,350 special radiology scanner from Faital Inc. The scanner has a useful life of 5 years and will 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 $104,330.
Approximately one year later, the hospital is approached by Harmon Technology salesperson, Jane Black, who indicated that purchasing the scanner in 2011 from Faital Inc. was a mistake. She points out that Harmon has a scanner that will save Kinnaird Hospital $26,850 a year in operating expenses over its 4-year useful life. She notes that the new scanner will cost $119,900 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. Black agrees to buy the old scanner from Kinnaird Hospital for $31,400.
If Kinnaird Hospital sells its old scanner on January 2, 2012, compute the gain or loss on the sale. (Enter the answer as a positive number and indicate profit or loss.)
$ _________ and Loss or Gain?
Using incremental analysis, determine if Kinnaird Hospital should purchase the new scanner on January 2, 2012. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter cost amounts as positive in the columns "Retain Scanner" and "Replace Scanner". To enter salvage value amount in columns "Retain Scanner" and "Replace Scanner" use 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 $ $ $
Kinnaird Hospital should _____ the old scanner. Retain or Replace?
Explanation / Answer
a. 79,480 – 31,400 = 48,080 loss
Retain
Replace
Net Income Increase/Decrease
Annual Operating Costs
417,320
309,920
107,400
New Scanner Cost
0
119,900
-119,900
Old Scanner Salvage
0
31,400
31,400
417,320
398,420
18,900
b. Kinard should replace the scanner.
Retain
Replace
Net Income Increase/Decrease
Annual Operating Costs
417,320
309,920
107,400
New Scanner Cost
0
119,900
-119,900
Old Scanner Salvage
0
31,400
31,400
417,320
398,420
18,900
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