Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,400. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $400 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,600 per year for four years, with no additional costs. Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 24013702006c00b_1 $fill in the blank 24013702006c00b_2 $fill in the blank 24013702006c00b_3 Costs: Purchase price $fill in the blank 24013702006c00b_4 $fill in the blank 24013702006c00b_5 $fill in the blank 24013702006c00b_6 Freight and installation fill in the blank 24013702006c00b_7 fill in the blank 24013702006c00b_8 fill in the blank 24013702006c00b_9 Repair and maintenance (4 years) fill in the blank 24013702006c00b_10 fill in the blank 24013702006c00b_11 fill in the blank 24013702006c00b_12 Lease (4 years) fill in the blank 24013702006c00b_13 fill in the blank 24013702006c00b_14 fill in the blank 24013702006c00b_15 Income (loss) $fill in the blank 24013702006c00b_16 $fill in the blank 24013702006c00b_17 $fill in the blank 24013702006c00b_18 Determine whether Sloan should lease (Alternative 1) or buy (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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Differential Analysis for a Lease or Buy Decision

Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,400. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $400 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,600 per year for four years, with no additional costs.

Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2)
December 3
	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank 24013702006c00b_1	$fill in the blank 24013702006c00b_2	$fill in the blank 24013702006c00b_3
Costs:
Purchase price	$fill in the blank 24013702006c00b_4	$fill in the blank 24013702006c00b_5	$fill in the blank 24013702006c00b_6
Freight and installation	fill in the blank 24013702006c00b_7	fill in the blank 24013702006c00b_8	fill in the blank 24013702006c00b_9
Repair and maintenance (4 years)	fill in the blank 24013702006c00b_10	fill in the blank 24013702006c00b_11	fill in the blank 24013702006c00b_12
Lease (4 years)	fill in the blank 24013702006c00b_13	fill in the blank 24013702006c00b_14	fill in the blank 24013702006c00b_15
Income (loss)	$fill in the blank 24013702006c00b_16	$fill in the blank 24013702006c00b_17	$fill in the blank 24013702006c00b_18

Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment.

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