Adams Company paid $92.000 to purchase a machine on January 1, Year 1. During Year 3, a technological breakthrough resulted in the development of a new machine that costs $118,000. The old machine costs $59,000 per year to operate, but the new machine could be operated for only $9,000 per year. The new machine, which will be available for delivery on January 1, year 3, has an expected useful life of four years. The old machine is more durable and is expected to have a remaining useful life of four years. The current market value of the old machine is $40,000. The expected salvage value of both machines is zero. Required Calculate the total avoidable costs in keeping the old machine and buying a new machine. Should the machine be replaced? Keep Old Buy New Total avoidable costs Should the machine be replaced?

Adams Company paid $92.000 to purchase a machine on January 1, Year 1. During Year 3, a technological breakthrough resulted in the development of a new machine that costs $118,000. The old machine costs $59,000 per year to operate, but the new machine could be operated for only $9,000 per year. The new machine, which will be available for delivery on January 1, year 3, has an expected useful life of four years. The old machine is more durable and is expected to have a remaining useful life of four years. The current market value of the old machine is $40,000. The expected salvage value of both machines is zero. Required Calculate the total avoidable costs in keeping the old machine and buying a new machine. Should the machine be replaced? Keep Old Buy New Total avoidable costs Should the machine be replaced?

Name: Adams Company paid $92.000 to purchase a machine on January 1, Year 1
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Description: Adams Company paid $92.000 to purchase a machine on January 1, Year 1. During Year 3, a technological breakthrough resuited inthe development of a new machine that costs $118,000. The old machine costs $59,000 per year to operate, but the new machin

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Question

Adams Company paid $92.000 to purchase a machine on January 1, Year 1. During Year 3, a technological breakthrough resuited in
the development of a new machine that costs $118,000. The old machine costs $59,000 per year to operate, but the new machine
could be operated for only $9,000 per year. The new machine, which will be available for delivery on January 1, year 3, has an
expected useful life of four years. The old machine is more durable and is expected to have a remaining useful life of four years. The
current market value of the old machine is $40,000. The expected salvage value of both machines is zero.
Required
Calculate the total avoidable costs in keeping the old machine and buying a new machine. Should the machine be replaced?
Keep Old Buy New
Total avoidable costs
Should the machine be replaced?

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