Question

In: Accounting

Lease or Sell Kincaid Company owns equipment with a cost of $363,300 and accumulated depreciation of...

Lease or Sell

Kincaid Company owns equipment with a cost of $363,300 and accumulated depreciation of $56,600 that can be sold for $275,700, less a 3% sales commission. Alternatively, Kincaid Company can lease the equipment for three years for a total of $288,500, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Kincaid Company on the equipment would total $16,500 over the three year lease.

a. Prepare a differential analysis on August 7 as to whether Kincaid Company should lease (Alternative 1) or sell (Alternative 2) the equipment. If required, use a minus sign to indicate a loss.

Differential Analysis
Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2)
August 7
Lease
Equipment
(Alternative 1)
Sell
Equipment
(Alternative 2)
Differential
Effects
(Alternative 2)
Revenues $ $ $
Costs
Profit (Loss) $ $ $

Solutions

Expert Solution

Answer:

Lease Machinery
(Alternative 1)
Sell Machinery
(Alternative 2)
Differential Effect on Income
(Alternative 2)
Revenues $            288,500 $        275,700 $                                   (12,800)
Costs $              16,500 $             8,271 $                                     (8,229)
Income (Loss) $            272,000 $        267,429 $                                     (4,571)

Calculations:

In case of any doubt, please feel free to comment.


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