Question

At the beginning of last year (2019), 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 company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.

Old Elevator. New Elevator

Purchase price		$105,000			$161,000
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		$34,500			$9,000
Fixed		22,000			8,900

Annual revenues are $240,000, 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 2020, Richter Condos will be able to sell it for $24,200.

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

Answer 1

Answer
Part 1
Purchase price	$      105,000
Less: Depreciation expense for the year ((105000-0)/5)	$        21,000
Book value of old Elevator	$        84,000
Book value of old Elevator	$        84,000
Less: Sold of old Elevator	$        24,200
Loss on Sales of old Elevator	$        59,800