Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $401,900 less accumulated depreciation of $121,900) for $277,800, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,900 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 $26,000. 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 $fill in the blank ad5c26f95fdff85_1 $fill in the blank ad5c26f95fdff85_2 $fill in the blank ad5c26f95fdff85_3 Costs fill in the blank ad5c26f95fdff85_4 fill in the blank ad5c26f95fdff85_5 fill in the blank ad5c26f95fdff85_6 Profit (Loss) $fill in the blank ad5c26f95fdff85_7 $fill in the blank ad5c26f95fdff85_8 $fill in the blank ad5c26f95fdff85_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 $280,000 (original cost of $401,900 less accumulated depreciation of $121,900) for $277,800, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,900 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 $26,000.

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	$fill in the blank ad5c26f95fdff85_1	$fill in the blank ad5c26f95fdff85_2	$fill in the blank ad5c26f95fdff85_3
Costs	fill in the blank ad5c26f95fdff85_4	fill in the blank ad5c26f95fdff85_5	fill in the blank ad5c26f95fdff85_6
Profit (Loss)	$fill in the blank ad5c26f95fdff85_7	$fill in the blank ad5c26f95fdff85_8	$fill in the blank ad5c26f95fdff85_9

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

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