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On January 2, 2021, Oriole Hospital purchased a $110,000 special radiology scanner from Uli Inc
On January 2, 2021, Oriole Hospital purchased a $110,000 special radiology scanner from Uli Inc.The scanner has a useful life of five 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 $104,200.
Approximately one year later, the hospital is approached by Blossom Technology salesperson Betty Harris,who indicates that purchasing the scanner in 2021 from Uli was a mistake.She points out that Blossom has a scanner that will save Oriole Hospital $25,800 a year in operating expenses over its four-year useful life. She notes that the new scanner will cost $120,100 and has the same capabilities as the scanner purchased It year.The hospital agrees that both scanners are of equal quality.The new scanner will have no disposal value. Blossom agrees to buy the old scanner from Oriole Hospital for $61,300.
le Your answer is correct.
Assume Oriole Hospital sells its old scanner on January 2, 2022. Calculate the gain or loss on the sale.
If Oriole Hospital sells its old scanner it incurs a
I
of $
Using incremental analysis, determine whether Oriole Hospital should purchase the new scanner on January 2, 2022. (If an amountreducts the net Income then enter witha negative Agn precedingthenumbereg. -15,000 orPorenthesis, (15.000)J
Net Income Increase (Decrease) Operating cost 312,600 235,200 77,400 New scanner cost 120,100 (120,100) Old scanner salvage 61,300 Total 312,600 294,000 18,600 Oriole Hospital I should purchase the new scanner. H
Expert Solution
| (a) Gain or Loss on Sale of Old Scanner in 2022: | |||
| Particular | Amount | ||
| Cost of Scanner | 110,000 | ||
| Less: Accumulated Depreciation | 22,000 | ||
| ($110,000/5 year * 1 year) | |||
| Book Value | 88,000 | ||
| Sale Value | 61,300 | ||
| Loss on sale ( Sale value - Book Value) | 26,700 | ||
| (b) Incremental Analysis of Twilight Hospital over next four years: | |||
| Particular | Retain Scanner | Replace Scanner | Increase / (Decrease ) in Net Income |
| Annual Operating Cost | 103,200 | ||
| 416800 | 313600 | ||
| ($104200*4) | (($104,200-$25,800)*4) | ||
| New Scanner Cost | 0 | 120,100 | -120,100 |
| Old Scanner Salvage Value | 0 | -61,300 | 61,300 |
| Total | 416,800 | 372,400 | 44,400 |
| Considering net increase of $44,400 in Net Income in next four years it is advisable to replace the scanner. | |||
| So, Oriole hospital should purchase the new scanner. | |||
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