# Murl Plastics Inc. purchased a new machine one year ago at a cost of \$69,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below:   PresentMachineProposedNew Machine  Purchase cost new\$69,000 \$103,500   Estimated useful life new 6 years 5 years  Annual operating costs\$48,300 \$16,100   Annual straight-line depreciation 11,500  20,700   Remaining book value 57,500  —   Salvage value now 11,500  —   Salvage value in five years 0  0    In trying to decide whether to purchase the new machine, the president has prepared the following analysis:      Book value of the old machine\$57,500   Less: Salvage value 11,500       Net loss from disposal\$46,000        “Even though the new machine looks good,” said the president, “we can’t get rid of that old machine if it means taking a huge loss on it. We’ll have to use the old machine for at least a few more years.”       Sales are expected to be \$241,500 per year, and selling and administrative expenses are expected to be \$144,900 per year, regardless of which machine is used.  Required:1.Prepare a summary income statement covering the next five years, assuming the following:  a.The new machine is not purchased.b.The new machine is purchased. (Leave no cells blank - be certain to enter "0" wherever required.)

Question
46 views
 Murl Plastics Inc. purchased a new machine one year ago at a cost of \$69,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below:

 PresentMachine ProposedNew Machine Purchase cost new \$ 69,000 \$ 103,500 Estimated useful life new 6 years 5 years Annual operating costs \$ 48,300 \$ 16,100 Annual straight-line depreciation 11,500 20,700 Remaining book value 57,500 — Salvage value now 11,500 — Salvage value in five years 0 0

 In trying to decide whether to purchase the new machine, the president has prepared the following analysis:

 Book value of the old machine \$ 57,500 Less: Salvage value 11,500 Net loss from disposal \$ 46,000

 “Even though the new machine looks good,” said the president, “we can’t get rid of that old machine if it means taking a huge loss on it. We’ll have to use the old machine for at least a few more years.”

 Sales are expected to be \$241,500 per year, and selling and administrative expenses are expected to be \$144,900 per year, regardless of which machine is used.

 Required:
 1 Prepare a summary income statement covering the next five years, assuming the following:

 a. The new machine is not purchased. b. The new machine is purchased. (Leave no cells blank - be certain to enter "0" wherever required.)

check_circle

Step 1

The income statement shows the revenues and expenses and hence the  resulting profits or losses arising from the business during any financial period.

Step 2

1 a. The income statement if machinery...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in