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    Financial Accounting: Gain or Loss Computation

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    Last year (2011) Solomon Condos installed a mechanized elevator for its tenants. The owner of the company, Sam Solomon, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This information is presented below.

    Old Elevator New Elevator
    Purchase price $120,000 $180,000
    Estimated salvage value 0 0
    Estimated useful life 6 years 5 years
    Depreciation method Straight-line Straight-line
    Annual operating costs
    other than depreciation:
    Variable $35,000 $12,000
    Fixed 23,000 8,400

    Annual revenues are $240,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2012, Solomon Condos will be able to sell it for $25,000.

    Answer needed:

    Determine any gain or loss if the old elevator is replaced

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