**Lease or Sell**Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000, which can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expenses that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease.**a. Differential Analysis on August 7**Determine whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment.| Differential Analysis | Lease Equipment (Alternative 1) | Sell Equipment (Alternative 2) | Differential Effects (Alternative 2) ||-----------------------|--------------------------------|-------------------------------|-------------------------------------|| Revenues | $320,000 | $300,000 | || Costs | $40,000 | $12,000 (4% commission) | || Profit (Loss) | | | |**b. Decision**Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?[Your decision here]**Explanation of Diagram**The table above compares the two options (leasing vs. selling) using a differential analysis framework. Each option lists the potential revenues and costs associated with the choice. - For leasing, the total revenue is $320,000 with associated repair, insurance, and tax expenses amounting to $40,000.- For selling, the revenue from selling is $300,000, from which a 4% commission ($12,000) must be deducted, leaving net proceeds. The differential effects column should help assess the financial impact between the two options, ultimately guiding the decision on whether to lease or sell the equipment.

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Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) August 7 Lease Sell Differential Equipment (Alternative 1) (Agrnative 2) (Alternative 2) s 300,000 Equipment Effects Revenues 320,000 600,000 Costs Profit (Loss) b. Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?

Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) August 7 Lease Sell Differential Equipment (Alternative 1) (Agrnative 2) (Alternative 2) s 300,000 Equipment Effects Revenues 320,000 600,000 Costs Profit (Loss) b. Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?

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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