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 companys accountant to provide him with cost data on the companys elevator. This information is presented below.

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 2017, Richter Condos will be able to sell it for $25,700.

New Elevator Old Elevator $98,500 $161,000 0 0 5 years Purchase price Estimated salvage value Estimated useful life Depreciation method Annual operating costs other than depreciation: Variable 4 years Straight-line Straight-line $35,000 22,800 $11,000 9,000 Fixed (a) 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. Retain Old Elevator Sales 240000 Less costs: Variable costs X Fixed costs X Selling & administrative Depreciation Net income (2) The old elevator is replaced. Replace Old Elevator Sales 1000 MINI 000 Less costs: Variable costs Fixed costs Selling & administrative Depreciation Operating income Less: Loss on old elevator Net income Using incremental analysis, determine if the old elevator should be replaced. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e. (45).) Net Income Retain Replace Increase Old Elevator Old Elevator (Decrease) Variable operating costs X Fixed operating costs New elevator cost man Salvage on old elevator X Totals