Determine any gain or loss if the old elevator is replaced

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Reference no: EM133163632

Question - At the beginning of last year (2021), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Matthew 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

$102,500

$159,000

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

$34,000

$9,000

Fixed

23,400

8,000

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 2022, Richter Condos will be able to sell it for $25,100.

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

Reference no: EM133163632

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