ng Computational HomeworLease or SellToccoa Company owns equipment with a cost of $1,200,000 and accumulated depreciation of $990,000 that can be sold for $200,000, less a5% sales commission. Alternatively, Toccoa Company can lease the equipment for 3 years for a total of $225,000, at the end of which there isno residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Toccoa Company on the equipmentwould total $45,000 over the 3-year lease.a. Prepare a differential analysis on October 29 as to whether Toccoa Company should lease (Alternative 1) or sell (Alternative 2) theequipment.Differential AnalysisLease Equipment (Alt. 1) or Sell Equipment (Alt. 2)October 29LeaseSellLine Item Description EquipmentEquipmentRevenuesCostsProfit (Loss)FeedbackDifferentialEffects(Alternative 1) (Alternative 2) (Alternative 2)AAAB

The objective of this question is to conduct a differential analysis to determine whether Toccoa…

Answered: ng Computational Homewor Lease or Sell…

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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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 Proceeds from sale v Differential revenue from lease V Differential cost of alternatives: Repairs, insurance, and property tax expenses from lease Commission on sale Differential cost of lease Net differential gain from lease alternative
Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $281,400 (original cost of $400,900 less accumulated depreciation of $119,500) for $275,200, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $286,100 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,400. a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential Effects(Alternative…
Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a book value of $279,500 (original cost of $401,200 less accumulated depreciation of $121,700) for $276,600, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,400 for five years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,400. a. Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery. Differential Analysis. Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) November 7 Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs Income (Loss) 1000
Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $277,900 (original cost of $398,200 less accumulated depreciation of $120,300) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,000 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 Sell Differential Machinery Machinery Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (Loss) b. On the basis of…
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Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a fair value of $70,000 to Baker Company. The lease has a life of 6 years and requires a $10,500 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round intermediate and final answers to the nearest dollar. (Click here to access the PV and FV tables to use with this problem.) Required: If the interest rate implicit in the lease is 10%, compute the machine's expected residual value. If the residual value is guaranteed by Baker, how would each company classify the lease?Baker Company (Lessee):Grygiel Company (Lessor): If the residual value is not guaranteed by Baker but is instead guaranteed by a third…
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $1,900,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing rate Fair value of asset Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2021. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the…
An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 20 percent tax bracket and the lessee pays no taxes. For what range of lease payments does the lease have a positive NPV for both parties? Between $184,561 and $184,699 Between $179,650 and $184,699 Between $179,650 and $184,561 The range does not exist
Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $280,600 (original cost of $398,600 less accumulated depreciation of $118,000) for $277,700, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $286,000 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,500. Question Content Area a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisLease Machinery (Alt. 1) or Sell Machinery (Alt. 2)May 25 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential…
On January 1, 2020, Beatrice Company sold an equipment with a remaining life of 20 years and immediately lease it back for a period of 5 years. Below are the relevant data:· Sale price at above fair value: P20,000,000· Fair value of building: 18,000,000· Carrying amount of building: 10,800,000· Annual rental payable at the end of each year: 1,500,000· Implicit rate: 12%PV factor for an ordinary annuity at 12% for five periods is 3.60. How much shall the buyer-lessor recognize as gross rental income and depreciation of the building, respectively? a. 555,556 ; 900,000 b. 944,444 ; 900,000 c. 555,556 ; 1,000,000 d. 944,444 ; 3,600,000
Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $282,000 (original cost of $400,300 less accumulated depreciation of $118,300) for $277,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $284,500 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,700. a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit…

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