On January 2, 2021, Twilight Hospital purchased a $104,400 special radiology scanner from Sheridan Inc. The scanner had a useful life of 4 years and was estimated to 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 $106,000. Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2021 from Sheridan Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $110,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $55,500. (a) If Twilight Hospital sells its old scanner on January 2, 2022, compute the gain or loss on the sale.
On January 2, 2021, Twilight Hospital purchased a $104,400 special radiology scanner from Sheridan Inc. The scanner had a useful life of 4 years and was estimated to 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 $106,000. Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2021 from Sheridan Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $110,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $55,500. (a) If Twilight Hospital sells its old scanner on January 2, 2022, compute the gain or loss on the sale.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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Transcribed Image Text:On January 2, 2021, Twilight Hospital purchased a $104,400 special radiology scanner from Sheridan Inc. The scanner had a useful life
of 4 years and was estimated to 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 $106,000.
Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that
purchasing the scanner in 2021 from Sheridan Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight
Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $110,000 and has
the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner
will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $55,500.
(a)
If Twilight Hospital sells its old scanner on January 2, 2022, compute the gain or loss on the sale.
Show Transcribed Text
Annual operating costs
New scanner cost
$
Prepare an incremental analysis of Twilight Hospital. (In the first two columns, enter costs and expenses as positive amounts, and any
amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative
amounts. Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg. (45))
Old scanner salvage
Total
Retain
Scanner
312000
n
312000
C
Replace
Scanner
237,000
110000
55500
292500
S
*Net Income
Increase
(Decrease)
75000
-110000
55500
20500
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