Exercise 20-13 (Part Level Submission) On January 2, 2016, Twilight Hospital pur
ID: 2544590 • Letter: E
Question
Exercise 20-13 (Part Level Submission)
On January 2, 2016, Twilight Hospital purchased a $92,000 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 $105,000.
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 Twilight Hospital $24,000 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 Twilight Hospital for $43,000.
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(a)
[Correct answer.] Your answer is correct.
If Twilight Hospital sells its old scanner on January 2, 2017, compute the gain or loss on the sale.
[Entry field with correct answer]
Gain on sale
Loss on sale
$
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(b)
Prepare an incremental analysis of Twilight Hospital. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain
Scanner Replace
Scanner Net Income
Increase
(Decrease)
Annual operating costs $
$
$
New scanner cost
Old scanner salvage
Total $
$
$
Should Twilight Hospital purchase the new scanner on January 2, 2017?
Yes
No
Explanation / Answer
Req A: Cots of old Sscanner: $ 92,000 Life of Scanner: 4 years Annual Depreciation: Cost / Life = $92,000 /4 = $ 23,000 Book value on Jan 2017: 92000-23000 = $ 69,000 Exchange Value: $ 43,000 Loss on Sale of Scanner: 69000-43000 = $ 26,000 Req B: INCREMENNTAL ANALYSIS OF TWILIGHT HOSPITAL: RETAIN REPLACE NET INCOME INCREASE/ DECREASE Annual Operating cost 315000 243000 72000 New Scanner cost 0 109000 -109000 Old Scanner salvage 0 43000 43000 Net income 315000 309000 6000 Req C: Yes Scanner must be replaced.
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