Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years. Prepare a differential analysis. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. g

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Present equipment - Annual variable cost  = $4,000

New equipment-Annual variable cost= $1,500

Difference between new and present equipment cost = $2,500 ( $4,000 - $1,500)

Useful life years5

Total difference decrease between new and present equipment cost = (5 × $2,500)= $12,500

Sales of present equipment = $2,000

New equipment cost = $18,000

Net annual difference increase in cost-new equipment= (18,000 - $2000)

=$16,000

According to the analysis, the net difference increase in cost is more than the total differential decrease in cost, so there is no benefit in replacement of equipment.

statement of owner"s equity;

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