Problem 20-4A (Part Level Submission) Last year (2016), Richter Condos installed

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 Estimated salvage value Estimated useful life Depreciation method Annual operating costs $96,000 $159,000 5 years 4 years Straight-line Straight-line other than depreciation: Variable Fixed $36,000 23,600 $10,000 8,700 Annual revenues are $239,000, 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 2017, Richter Condos will be able to sell it for $25,200 Your answer is partially correct. Try again. Determine any gain or loss if the old elevator is replaced. Attempts: 1 of 5 used The parts of this question must be completed in order. This part will be available when you complete the part above. The parts of this question must be completed in order. This part will be available when you

Explanation / Answer

a.

Purchase price of the old elevator = 96,000.

Life = 5 years. Thus depreciation per year = 96,000/5 = 19,200 per year

Book value of the old elevator after 1 year (I.e. beginning of 2017) = 96,000-19,200 = 76,800

Sale value = 25,200.

Now as sale value<book value there will be a loss.

Loss amount = 76800-25200

= $51,600 (loss)

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