Exercise 12-13 On January 2, 2016, Pronghorn Hospital purchased a $98,400 specia

Question

Exercise 12-13 On January 2, 2016, Pronghorn Hospital purchased a $98,400 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 $106,000 Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2016 from Bella Inc. was a mistake. He points out that Dyno has a scanner that will save Pronghorn Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $109,000 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 Pronghorn Hospital for $48,000. If Pronghorn Hospital sells its old scanner on January 2, 2017, compute the gain or loss on the sale. LINK TO TEXT

Explanation / Answer

Book value of old scanner=98400-(98400/4)= $73800 Loss on sale = $25800 (73800-48000 Retain scanner Replace scanner Net income change Annual operating costs 318000 243000 75000 New scanner cost 109000 -109000 Old scanner salvage -48000 48000 Total 318000 304000 14000 Yes, purchase the new scanner

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