Maurice Tutor

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Teaching Since: May 2017
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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 22 Jul 2017 My Price 15.00

Simmons Company

Last year (2013), Simmons Company installed new factory equipment. The owner of the company, Gene Simmons, recently returned from an industry equipment exhibition where he watched computerized equipment demonstrated. He was impressed with the equipment"s speed and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new equipment. In addition, he asked the company"s accountant to provide him with cost data on the company"s equipment. This information is presented below.

 

Old Equipment

New Equipment

Purchase price

$210,000

$250,000

Estimated salvage value

0

0

Estimated useful life

5 years

4 years

Depreciation method

Straight-line

Straight-line

Annual operating costs other than depreciation:

    

Variable

$50,000

$12,000

Fixed

30,000

5,000

Annual revenues are $360,000, and selling and administrative expenses are $45,000, regardless of which equipment is used. If the old equipment is replaced now, at the beginning of 2014, Simmons Company will be able to sell it for $58,000.

Instructions

(a)Determine any gain or loss if the old equipment is replaced.

(b)Prepare a 4-year summarized income statement for each of the following assumptions:

(1).The old equipment is retained.

(2).The old equipment is replaced.

(c)Using incremental analysis, determine if the old equipment should be replaced.

(d)Write a memo to Gene Simmons explaining why any gain or loss should be ignored in the decision to replace the old equipment.

Answers

Maurice Tutor
(5)
Status NEW Posted 22 Jul 2017 07:07 PM My Price 15.00

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