At the beginning of last year (2019), 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 companys accountant to provide him with cost data on the companys elevator. This information is presented below.

At the beginning of last year (2019), 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. Purchase price Estimated salvage value Estimated useful life Depreciation method Annual operating costs other than depreciation: Variable Fixed Old Elevator $98,500 0 5 years Straight-line $35,000 22,800 New Elevator $161,000 0 4 years Straight-line $11,000 9,000 Annual revenues are $240,000, 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 2020, Richter Condos will be able to sell it for $25,700. Determine any gain or loss if the old elevator is replaced. Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained. Revenues Less costs: Variable costs Fixed costs Selling & administrative Depreciation Net income (2) The old elevator is replaced. Revenues Less costs: Variable costs Fixed costs Selling & administrative Depreciation Operating income Loss on old elevator Net income SA SA LA Retain Old Elevator Replace Old Elevator Using incremental analysis, determine if the old elevator should be replaced. (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.-15 or parentheses e.g. (15).) Variable operating costs Fixed operating costs New elevator cost Salvage on old elevator Totals The old elevator eTextbook an should should not $ Retain Old Elevator be replaced. SA $ Replace Old Elevator SA $ Net Income Increase (Decrease)