Question

On January 2, 2019, Twilight Hospital purchased a $95,200 special radiology scanner from Bella Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are $104,000.

Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2019 from Bella Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $111,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $44,000.

If Twilight Hospital sells its old scanner on January 2, 2020, compute the gain or loss on the sale.

Gain on saleLoss on sale

$

Prepare an incremental analysis of Twilight Hospital. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Retain Scanner		Replace Scanner		Net Income Increase (Decrease)
Annual operating costs		$		$		$
New scanner cost
Old scanner salvage
Total		$		$		$

Should Twilight Hospital purchase the new scanner on January 2, 2020?

Answer 1

1
Depreciation on old scanner	23800	=95200/4
Book value of Scanner	71400	=95200-23800
Less: Sales price	44000
Loss on sale	27400
2
	Retain Scanner	Replace Scanner	Net Income Increase (Decrease)
Annual operating costs	312000	237000	75000
New scanner cost	0	111000	-111000
Old scanner salvage	0	-44000	44000
Total	312000	304000	8000
Yes, purchase the new scanner on January 2, 2020