Question
Sharkeys Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey,
Sharkeys Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey has gathered the following information about the slide: |
a. | Water slide equipment could be purchased and installed at a cost of $330,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value. |
b. | Mr. Sharkey would use straight-line depreciation on the slide equipment. |
c. | To make room for the water slide, several rides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $92,000 to an amusement park in a nearby city. |
d. | Mr. Sharkey has concluded that about 50,000 more people would use the water slide each year than have been using the rides. The admission price would be $3.70 per person (the same price that the Fun Center has been charging for the old rides). |
e. | Based on experience at other water slides, Mr. Sharkey estimates that annual incremental operating expenses for the slide would be: salaries, $82,000; insurance, $4,500; utilities, $13,300; and maintenance, $10,100. |
Required: | |||||||||||||||||||||||||||
1. | Prepare an income statement showing the expected net operating income each year from the water slide.
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