Benson Moran manages the cutting department of Greene Campbell Company. He purchased a tree-cutting machine on January 1, year 2, for $380,000. The machine had an estimated useful life of 5 years and zero salvage value, and the cost to operate it is $86,000 per year. Technological developments resulted in the development of a more advanced machine available for purchase on January 1, year 3, that would allow a 30 percent reduction in operating costs. The new machine would cost $240,000 and have a 4- year useful life and zero salvage value. The current market value of the old machine on January 1, year 3, is $250,000, and its book value is $304,000 on that date. Straight-line depreciation is used for both machines. The company expects to generate $225,000 of revenue per year from the use of either machine. Required a. Recommend whether to replace the old machine on January 1, year 3. b. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is retained. c. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced. Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced. Year 3 Year 4 Year 5 Year 6 Total Revenue Depreciation expense Operating expense Loss on disposal Net income (loss)
Benson Moran manages the cutting department of Greene Campbell Company. He purchased a tree-cutting machine on January 1, year 2, for $380,000. The machine had an estimated useful life of 5 years and zero salvage value, and the cost to operate it is $86,000 per year. Technological developments resulted in the development of a more advanced machine available for purchase on January 1, year 3, that would allow a 30 percent reduction in operating costs. The new machine would cost $240,000 and have a 4- year useful life and zero salvage value. The current market value of the old machine on January 1, year 3, is $250,000, and its book value is $304,000 on that date. Straight-line depreciation is used for both machines. The company expects to generate $225,000 of revenue per year from the use of either machine. Required a. Recommend whether to replace the old machine on January 1, year 3. b. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is retained. c. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced. Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced. Year 3 Year 4 Year 5 Year 6 Total Revenue Depreciation expense Operating expense Loss on disposal Net income (loss)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Benson Moran manages the cutting department of Greene Campbell Company. He purchased a tree-cutting machine on January 1,
year 2, for $380,000. The machine had an estimated useful life of 5 years and zero salvage value, and the cost to operate it is
$86,000 per year. Technological developments resulted in the development of a more advanced machine available for purchase on
January 1, year 3, that would allow a 30 percent reduction in operating costs. The new machine would cost $240,000 and have a 4-
year useful life and zero salvage value. The current market value of the old machine on January 1, year 3, is $250,000, and its book
value is $304,000 on that date. Straight-line depreciation is used for both machines. The company expects to generate $225,000 of
revenue per year from the use of either machine.
Required
a. Recommend whether to replace the old machine on January 1, year 3.
b. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is retained.
c. Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Prepare income statements for four years (year 3 through year 6) assuming that the old machine is replaced.
Year 3
Year 4
Year 5
Year 6
Total
Revenue
Depreciation expense
Operating expense
Loss on disposal
Net income (loss)
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