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Exercise 6-19A (Algo) Asset replacement decision LO 6-5 Solomon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows. Existing Equipment Historical cost. Operating expenses* Salvage value Market value Book value Remaining useful life. $ 119,000 102,000 21,000 45,000 36,000 Old 9 years Total cost Should the equipment be replaced? Replacement Equipment Market price Operating expenses* Salvage value Useful life *The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment. New $ 108,000 96,000 Required Calculate the total relevant cost of existing equipment and the potential replacement equipment. Should the equipment be replaced? 14,000 9 years

Exercise 6-19A (Algo) Asset replacement decision LO 6-5 Solomon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows. Existing Equipment Historical cost. Operating expenses* Salvage value Market value Book value Remaining useful life. $ 119,000 102,000 21,000 45,000 36,000 Old 9 years Total cost Should the equipment be replaced? Replacement Equipment Market price Operating expenses* Salvage value Useful life *The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment. New $ 108,000 96,000 Required Calculate the total relevant cost of existing equipment and the potential replacement equipment. Should the equipment be replaced? 14,000 9 years

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Exercise 6-19A (Algo) Asset Replacement Decision LO 6-5** Solomon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows. | | Existing Equipment | Replacement Equipment | |----------------------|--------------------|-----------------------| | Historical cost | $119,000 | Market price $108,000 | | Operating expenses* | $102,000 | Operating expenses* $96,000 | | Salvage value | $21,000 | Salvage value $14,000 | | Market value | $45,000 | Useful life 9 years | | Book value | $36,000 | | | Remaining useful life| 9 years | 9 years | *The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment. **Required:** Calculate the total relevant cost of existing equipment and the potential replacement equipment. Should the equipment be replaced? | | Old | New | |-----------|-----|-----| | Total cost| | | | Should the equipment be replaced? | | | In this exercise, students are asked to consider all relevant financial factors, such as costs, expenses, salvage values, and useful life, to determine whether replacing equipment will lead to cost savings or not.
Transcribed Image Text:**Exercise 6-19A (Algo) Asset Replacement Decision LO 6-5** Solomon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows. | | Existing Equipment | Replacement Equipment | |----------------------|--------------------|-----------------------| | Historical cost | $119,000 | Market price $108,000 | | Operating expenses* | $102,000 | Operating expenses* $96,000 | | Salvage value | $21,000 | Salvage value $14,000 | | Market value | $45,000 | Useful life 9 years | | Book value | $36,000 | | | Remaining useful life| 9 years | 9 years | *The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment. **Required:** Calculate the total relevant cost of existing equipment and the potential replacement equipment. Should the equipment be replaced? | | Old | New | |-----------|-----|-----| | Total cost| | | | Should the equipment be replaced? | | | In this exercise, students are asked to consider all relevant financial factors, such as costs, expenses, salvage values, and useful life, to determine whether replacing equipment will lead to cost savings or not.
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