Stowe Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $400,300 less accumulated depreciation of $118,800) for $274,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,500 for 5 years, after which it is expected to have no residual value. During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,900. Question Content Area a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential AnalysisLease (Alt. 1) or Sell (Alt. 2) MachineryMarch 21 Line Item Description Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effects (Alternative 2) Revenues $Revenues $Revenues $Revenues Costs Costs Costs Costs Profit (loss) $Profit (loss) $Profit (loss) $Profit (loss) Question Content Area b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Stowe Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $400,300 less accumulated depreciation of $118,800) for $274,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,500 for 5 years, after which it is expected to have no residual value. During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,900. Question Content Area a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential AnalysisLease (Alt. 1) or Sell (Alt. 2) MachineryMarch 21 Line Item Description Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effects (Alternative 2) Revenues $Revenues $Revenues $Revenues Costs Costs Costs Costs Profit (loss) $Profit (loss) $Profit (loss) $Profit (loss) Question Content Area b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Stowe Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $400,300 less
Question Content Area
a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.
| Line Item Description | Lease Machinery (Alternative 1) |
Sell Machinery (Alternative 2) |
Differential Effects (Alternative 2) |
|---|---|---|---|
| Revenues | $Revenues | $Revenues | $Revenues |
| Costs | Costs | Costs | Costs |
| $Profit (loss) | $Profit (loss) | $Profit (loss) |
Question Content Area
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
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