On Jan 2, 2011 Kinnard hospital purchased a $93,250 special radiology scanner fr

Question

On Jan 2, 2011 Kinnard hospital purchased a $93,250 special radiology scanner from Faital inc. The scanner has a useful life of 5 years and will 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 $105,440.
Approximately one year later, the hospital is approached by Harmon Technology salesperson, Jane Black, who indicated that purchasing the scanner in 2011 from Faital Inc. was a mistake. She points out that Harmon has a scanner will cost $119800 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. Black agress to buy the old scanner from Kinnaird Hospital for $28420.

If Kinnaird hospital sells its old scanner on Jan 2 2012, compute the gain or loss on the sale (Enter the answer as a positive number and indicate profit or loss.)

$ *** - loss

Using incremental analysis, determine if Kinnaird Hospital should purchase the new scanner on Jan 2 2012. (If the answer is zero, enter 0. If the number is negative use () around the number.

Item Retain Scanner Replace Scanner Net Income (+/-)
Annual operating costs $421760 $311600 $110160
New scanner cost 0 119800 (119800)

Old scanner salavage 0 *** ***

Total 421760 *** ***

Kinnaird hosptial should replace the old scanner.

Note: When seeing this in the problem *** indicates that this number needs to be filled with the correct number. This means fill in the blanks.

Explanation / Answer

If Kinnaird Hospital sells its old scanner on January 2, 2012, compute the gain or loss on the sale. (Enter the answer as a positive number and indicate profit or loss.) $ LossGain Cost $108,650 / 5 years = 21,730 depreciation. $108,650 - $21,730 = $86,920 book value $86,920 - $30,930 sales proceeds = $55,990 Loss on sale Net Income Retain Replace Increase Scanner Scanner (Decrease) Annual operating costs (4 years) 420,480 312,640 107,840 New scanner cost 119,900 (119,900) Old scanner salvage (30,930) 30,930 Total 420,480 401,610 18,870 The scanner should be replaced as there is increase in net income

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