In: Accounting
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) | $ | $ | $ |
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.