Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $59,660 the accumulated depreciation is $25,560, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $173,335. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $59,660 the accumulated depreciation is $25,560, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $173,335. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

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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An old machine that originally cost $9,500 thus far has accumulated depreciation of$1,900. The remaining useful life is four years, with no salvage value at the end of itsuseful life. A new machine is now available that costs $8,500, with a useful life of fiveyears and no residual value. The old machine could be sold now for $1,400. The annualcash operating costs for the old machine are $5,000, but for the new machine theywould be only $2,500. Gross revenue from the products would be $12,000 annually foreither machine. The company shouldA) keep the old machine to avoid a $6,200 loss on its disposal.B) replace the old machine.C) keep the old machine to avoid an $8,500 decrease in cash.D) keep the old machine to avoid a $1,400 loss on its disposal.
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