Frank Moran manages the cutting department of Greene Timber Company. He purchased a tree-cutting machine on January 1, year 2, for $200,000. The machine had an estimated useful life of five years and zero salvage value, and the cost to operate it is $45,000 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 25 percent reduction in operating costs. The new machine would cost $120,000 and have a four-year useful life and zero salvage value. The current market value of the old machine on January 1, year 3, is $100,000, and its book value is $160,000 on that date. Straight-line depreciation is used for both machines. The company expects to generate $112,000 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 retained. Year 3 Year 4 Year 5 Year 6 Total Revenue $ Depreciation expense Operating expense Net income (loss) $ 0 $ $ 0 $ $ < Required A Required C >
Frank Moran manages the cutting department of Greene Timber Company. He purchased a tree-cutting machine on January 1, year 2, for $200,000. The machine had an estimated useful life of five years and zero salvage value, and the cost to operate it is $45,000 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 25 percent reduction in operating costs. The new machine would cost $120,000 and have a four-year useful life and zero salvage value. The current market value of the old machine on January 1, year 3, is $100,000, and its book value is $160,000 on that date. Straight-line depreciation is used for both machines. The company expects to generate $112,000 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 retained. Year 3 Year 4 Year 5 Year 6 Total Revenue $ Depreciation expense Operating expense Net income (loss) $ 0 $ $ 0 $ $ < Required A Required C >
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter9: Depreciation (deprec)
Section: Chapter Questions
Problem 1R: Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an...
Related questions
Concept explainers
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.
Topic Video
Question
Transcribed Image Text:Frank Moran manages the cutting department of Greene Timber Company. He purchased a tree-cutting machine on January 1, year 2,
for $200,000. The machine had an estimated useful life of five years and zero salvage value, and the cost to operate it is $45,000 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 25 percent reduction in operating costs. The new machine would cost $120,000 and have a four-year useful life
and zero salvage value. The current market value of the old machine on January 1, year 3, is $100,000, and its book value is $160,000
on that date. Straight-line depreciation is used for both machines. The company expects to generate $112,000 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 retained.
Year 3
Year 4
Year 5
Year 6
Total
Revenue
$
Depreciation expense
Operating expense
Net income (loss)
$
$
$
2$
$
< Required A
Required C >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
