Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 61

A Replace equipment
A machine with a book value of $126,000 has an estimated six-year life. A proposal is offered to sell the old machine for $84,000 and replace it with a new machine at a cost of $145,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $55,000 to $43,000. Prepare a differential analysis dated February 18 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).
B Replace equipment
A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and replace it with a new machine at a cost $75,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,200 to $7,400. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).