At the beginning of last year (2021), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Donald 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.

		Old Elevator			New Elevator
Purchase price		$103,000			$160,000
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		$35,800			$10,000
Fixed		23,800			8,100

Annual revenues are $241,000, 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 2022, Richter Condos will be able to sell it for $24,800.

(a)

Correct answer icon

Your answer is correct.

Determine any gain or loss if the old elevator is replaced.

select an option Loss on saleGain on sale

$enter a dollar amount

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Attempts: 2 of 3 used

(b)

Partially correct answer icon

Your answer is partially correct.

Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained.

				Retain Old Elevator
Revenues				$enter a dollar amount
Less costs:
Variable costs		$enter a dollar amount
Fixed costs		enter a dollar amount
Selling & administrative		enter a dollar amount
Depreciation		enter a dollar amount		enter a subtotal of the four previous amounts
Net income				$enter a total amount

(2) The old elevator is replaced.

				Replace Old Elevator
Revenues				$enter a dollar amount
Less costs:
Variable costs		$enter a dollar amount
Fixed costs		enter a dollar amount
Selling & administrative		enter a dollar amount
Depreciation		enter a dollar amount		enter a subtotal of the four previous amounts
Operating income				enter a total amount for the first part
Loss on old elevator				enter a dollar amount
Net income				$enter a total amount

(3) Incremental analysis

	Retain old elevator	Replace old elevator	Increase (decrease) in cost
Variable costs
Fixed costs
Purchase price
Selling price of old elevator
Total cost $