Last year, Sheridan Condos installed a mechanized elevator for its tenants. The owner of the company, James Smith, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfortable 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 existing elevator. The information is presented below:

		Old Elevator		New Elevator
	Purchase price	$114,000		$179,000
	Estimated salvage value	0		0
	Estimated useful life	6 years		5 years
	Depreciation method	Straight-line		Straight-line
	Annual operating expenses other than depreciation:
	Variable	$34,000		$11,000
	Fixed	22,000		8,000

Annual revenues are $239,000 and selling and administrative expenses are $28,000, regardless of which elevator is used. If it replaces the old elevator now, at the beginning of 2022, Sheridan Condos will be able to sell it for $24,000.

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

If the old elevator is replaced Sheridan Condos will incur a select an option profitloss of $enter a dollar amount .

Question Part Score

--/2

Prepare a 5-year summarized income statement for each of the following assumptions:

(1) The old elevator is kept.

Sales				$enter a dollar amount
Less costs:
Variable operating costs		$enter a dollar amount
Fixed operating costs		enter a dollar amount
Selling and 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.

Sales			$enter a dollar amount
Less costs:
Variable operating costs	$enter a dollar amount
Fixed operating costs	enter a dollar amount
Selling and 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
Less: Loss on old elevator			enter a dollar amount
Net income			$enter a total amount

Question Part Score

--/10

Using incremental analysis, determine whether the old elevator should be replaced. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).)

	Retain Old Elevator		Replace Old Elevator		Net Income Increase (Decrease)
Variable operating costs	$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Fixed operating costs	enter a dollar amount		enter a dollar amount		enter a dollar amount
New elevator cost	enter a dollar amount		enter a dollar amount		enter a dollar amount
Salvage on old elevator	enter a dollar amount		enter a dollar amount		enter a dollar amount
Totals	$enter a total amount		$enter a total amount		$enter a total amount

The old elevator select an option should/should not be replaced.