Answered: . Lease or Sell Astro Company owns a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Lease or Sell

Astro Company owns a equipment with a cost of $365,000 and accumulated depreciation of $52,200 that can be sold for $275,000, less a 4% sales commission. Alternatively, Astro Company can lease the equipment to another company for three years for a total of $285,800, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Astro Company on the equipment would total $16,300 over the three years.

2. Discontinue a Segment

Product T has revenue of $195,400, variable cost of goods sold of $116,100, variable selling expenses of $33,900, and fixed costs of $58,500, creating a loss from operations of $13,100.

Prepare a differential analysis as of May 9, to determine whether Product T should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Discontinue a Segment
Product T has revenue of $195,400, variable cost of goods sold of $116,100, variable selling expenses of $33,900, and fixed costs of $58,500, creating a loss from
operations of $13,100.
Prepare a differential analysis as of May 9, to determine whether Product T should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed
costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Continue Product T (Alt. 1) or Discontinue Product T (Alt. 2)
May 9
Differential Effect
Continue Product
Discontinue Product
on Income
T (Alternative 1)
T (Alternative 2)
(Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable selling expenses
Fixed costs
Income (Loss)
$
Determine if Product T should be continued (Alternative 1) or discontinued (Alternative 2).

Lease or Sell
Astro Company owns a equipment with a cost of $365,000 and accumulated depreciation of $52,200 that can be sold for $275,000, less a 4% sales commission.
Alternatively, Astro Company can lease the equipment to another company for three years for a total of $285,800, at the end of which there is no residual value. In
addition, the repair, insurance, and property tax expense that would be incurred by Astro Company on the equipment would total $16,300 over the three years.
Prepare a differential analysis on March 23 as to whether Astro Company should lease (Alternative 1) or sell (Alternative 2) the equipment. For those boxes in
which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2)
March 23
Differential Effect
Lease Equipment
Sell Equipment
on Income
(Alternative 1)
(Alternative 2)
(Alternative 2)
Revenues
Costs
Income (Loss)
Should Astro Company lease (Alternative 1) or sell (Alternative 2) the equipment?

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