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.)

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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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:

	Present Machine	Proposed New 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.)

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