costacctg13_sm_ch11

This adjustment would mean excluding the depreciation

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Unformatted text preview: equipment Cash inflow from sale of old equipment Net cash inflow $150,000 (110,000) (15,000) (20,000)* Four Years Together $600,000 (440,000) (60,000) (20,000) Buy New Machine Each Four Year Years Year 1 2, 3, 4 Together $150,000 (110,000) (9,000) (20,000) (24,000) $150,000 (110,000) (9,000) $600,000 (440,000) (36,000) (20,000) (24,000) 8,000 $ 88,000 $ 5,000 $ 25,000 $ 80,000 8,000 $ (5,000) $ 31,000 *Some students ignore this item because it is the same for each alternative. However, note that a statement for the entire year has been requested. Obvi ousl y, the $20,000 would affect Year 1 only under both the “keep” and “buy” alternatives. The difference is $8,000 for four years taken together. In particular, note that the $20,000 book value can be o mitted fro m the co mparison. Merely cross out the ent ire line; alt hough the column totals are affected, the net difference is st ill $8,000. 1b. Again, the difference is $8,000: Income Statements Keep Buy New Machine Each Four Each Four Years Year Years Year Together 1, 2, 3, 4 Together Year 1 2, 3, 4 $150,000 $600,000 $150,000 $150,000 $600,000 110,000 5,000 15,000 130,000 440,000 20,000 60,000 520,000 110,000 6,000 9,000 125,000 110,000 6,000 9,000 125,000 440,000 24,000 36,000 500,000 * 20,000 (8,000) 12,000 512,000 $ 88,000 Revenues Costs (excluding disposal): Other operating costs Depreciat ion Operating costs of machine Total costs (excluding disposal) Loss on disposal: Book value (“cost”) Proceeds (“revenue”) Loss on disposal Total costs Operating inco me * 130,000 520,000 $ 20,000 $ 80,000 20,000 (8,000) 12,000 137,000 125,000 $ 13,000 $ 25,000 As in part (1), the $20,000 book value ma y be omitted from the comparison without changing the $8,000 difference. This adjustment would mean excluding the depreciation item of $5,000 per year (a cumulative effect of $20,000) under the “keep” alternative and excluding the book value item of $20,000 in the loss on disposal computation under the “buy” alternative. 11­14 1c. The $20,000 purchase cost of the o ld equipment, the revenues, and the other operating costs are irrelevant because their amounts are...
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