Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less accumulated depreciation of $120,400) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,300 for five 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 $25,000. 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 Effects (Alternative 2) Revenues ? ? ? Costs ? ? ? Profit (Loss) ? ? ? b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less accumulated depreciation of $120,400) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,300 for five 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 $25,000. 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 Effects (Alternative 2) Revenues ? ? ? Costs ? ? ? Profit (Loss) ? ? ? b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less
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 Effects (Alternative 2) |
|
| Revenues | ? | ? | ? |
| Costs | ? | ? | ? |
| ? | ? | ? |
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
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