Lease or Sell Decision Sure-Bilt Industries is considering selling excess machinery with a book value of $281,500 (original cost of $401,300 less accumulated depreciation of $119,800) for $275,000 less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $284,900 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Industries' costs of repairs, insurance, and property tax expenses are expected to be $25,900. a. Prepare a differential analysis report for the lease or sell decision. SURE-BILT INDUSTRIES Proposal to Lease or Sell Machinery Differential Analysis Report Differential revenue from alternatives: Revenue from lease v Proceeds from sale Differential revenue from lease v Differential cost of alternatives: Repairs, insurance, and property tax expenses from lease v Commission on sale Differential cost of lease Net differential gain from lease alternative

Lease or Sell Decision Sure-Bilt Industries is considering selling excess machinery with a book value of $281,500 (original cost of $401,300 less accumulated depreciation of $119,800) for $275,000 less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $284,900 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Industries' costs of repairs, insurance, and property tax expenses are expected to be $25,900. a. Prepare a differential analysis report for the lease or sell decision. SURE-BILT INDUSTRIES Proposal to Lease or Sell Machinery Differential Analysis Report Differential revenue from alternatives: Revenue from lease v Proceeds from sale Differential revenue from lease v Differential cost of alternatives: Repairs, insurance, and property tax expenses from lease v Commission on sale Differential cost of lease Net differential gain from lease alternative

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 LeaseMachinery(Alternative 1) SellMachinery(Alternative 2) DifferentialEffect(Alternative 2) Revenues $fill in the blank…
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Branif Leasing leases mechanical equipment to industrial consumers under direct financing leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments of $100,000 beginning December 31, 2016, the inception of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,500. The lease qualifies as a capital lease to Branson. Maintenance of the equipment was contracted for through a 20-year service agreement with Midway Service Company requiring 20 annual payments of $3,000 beginning December 31, 2016. Both companies use straight-line depreciation. Required: Prepare the appropriate entries for both the lessee and lessor to record the second lease payment and depreciation on December 31, 2017, under each of three independent assumptions: 1. The lessee pays executory costs as incurred. 2. The contract specifies that the lessor pays…
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Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment to Western Soya Company for a noncancelable stated lease term of four years ending December 31, 2028, at which time possession of the leased asset will revert back to Rhone-Metro. ● ● ● The equipment cost $390,000 to manufacture and has an expected useful life of six years. Its normal sales price is $445,205. The expected residual value of $26,000 on December 31, 2028, is not guaranteed. The first payment was made on December 31, 2024. Western Soya's incremental borrowing rate is 10%. Western Soya knows the interest rate implicit in the lease payments is 9%. Both companies use straight-line depreciation or amortization. [Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO).] Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of…
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A Limited leased a fleet of trucks for a four year period, with a minimum payment of $30,000 per annum. The interest rate available to A Limited is 5% per annum. The fleet of trucks has a residual value of $45,000, the price at which A Ltd can purchase the fleet at the end of the lease. What is the present value of the lease of the fleet of trucks? Select one or more: O a. $243,401 O b. $150,000 O c. $106,380 O d. $143,402
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