Prepare a comparative income statement covering the next

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Reference no: EM133445495

Question: The new machine costs $99,000 and is expected to slash the current annual operating costs of $46,200 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $11,000 if the company decides to buy the new machine. The company uses straight-line depreciation.

In trying to decide whether to purchase the new machine, the president has prepared the following analysis:


Book value of the old machine	$	55,000
Less: Salvage value		11,000
Net loss from disposal	$	44,000

"Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years."

Sales are expected to be $231,000 per year, and selling and administrative expenses are expected to be $138,600 per year, regardless of which machine is used.

Required:

1. Prepare a comparative income statement covering the next five years, assuming:

a. The new machine is not purchased.

b. The new machine is purchased.

Reference no: EM133445495

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