Problem 12-4 Last year (2016), Blue 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 $105,000 $160,000 Purchase price Estimated salvage value Estimated useful life 0 5 years 4 years Straight-line Straight-line Depreciation method Annual operating costs other than depreciation: Variable $35,100 23,800 $11,000 8,000 Fixed Annual revenues are $241,000, 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, Blue Condos will be able to sell it for $24,500. Your answer is correct. Determine any gain or loss if the old elevator is replaced. Tross on sale Loss on sale 59500 59500 Your answer is correct. Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained. Retain Old Elevator Revenues 964000 Less costs: Variable costs 140400 Fixed costs 95200 Selling & administrative 116000 Depreciation 84000 >PI 435600 Net income 528400 (2) The old elevator is replaced. Replace Old Elevator Revenues 964000 Less costs: Variable costs 44000 Fixed costs 32000 Selling & administrative 000 Depreciation 160000 352000 Operating income 612000 Less: Loss on old elevator 59500 Net income 552500 Your answer is partially correct. Try again. 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.g. (45.) Retain Old Elevator Replace Old Elevator Net Income Increase (Decrease) Variable operating costs 40400 44000 T 96400 Fixed operating costs 95200 32000 T 63200 New elevator cost -160000 Salvage on old elevator 24500 Totals 235600 24100