Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $9,000. a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery January 15 Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect (Alternative 2) Revenues $fill in the blank 12f733030f87018_1 $fill in the blank 12f733030f87018_2 $fill in the blank 12f733030f87018_3 Costs fill in the blank 12f733030f87018_4 fill in the blank 12f733030f87018_5 fill in the blank 12f733030f87018_6 Profit (Loss) $fill in the blank 12f733030f87018_7 $fill in the blank 12f733030f87018_8 $fill in the blank 12f733030f87018_9 b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

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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Differential Analysis for a Lease or Sell Decision

Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $9,000.

a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Machinery
January 15
	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect (Alternative 2)
Revenues	$fill in the blank 12f733030f87018_1	$fill in the blank 12f733030f87018_2	$fill in the blank 12f733030f87018_3
Costs	fill in the blank 12f733030f87018_4	fill in the blank 12f733030f87018_5	fill in the blank 12f733030f87018_6
Profit (Loss)	$fill in the blank 12f733030f87018_7	$fill in the blank 12f733030f87018_8	$fill in the blank 12f733030f87018_9

b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

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