Differential Analysis for a Lease or Sell Decision: InmanConstruction Company is considering selling excess machinerywith a book value of $278,500 (original cost of $399,100 lessaccumulated depreciation of $120,600) for $276,900, less a 5%brokerage commission. Alternatively, the machinery can beleased for a total of $284,100 for five years, after which it isexpected to have no residual value. During the period of thelease, Inman Construction Company's costs of repairs,insurance, and property tax expenses are expected to be$25,700.Prepare a differential analysis, dated January 3, 2014, todetermine whether Inman should lease (Alternative 1) or sell(Alternative 2) the machinery.

Step 1: Differential or Incremental Analysis for Lease or Sell Decision:Firms usually carry out…

Answered: Differential Analysis for a Lease or…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1E: Differential analysis for a lease or sell decision Burlington Construction Company is considering...

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Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a lair value of 50,000 to Baker Company. The lease has a life of 6 years and requires a 10,000 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 your answers to the nearest dollar. Required: 1. Next Level If the interest rate implicit in the lease is 10%, compute the machines expected residual value. 2. Next Level If the residual value is guaranteed by Baker, how would each company classify the lease? 3. Next Level If the residual value is not guaranteed by Baker but is instead guaranteed by a third party, how would each company classify the lease?
Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $279,600 (original cost of $399,400 less accumulated depreciation of $119,800) for $274,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,200 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 $24,900. 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) DifferentialEffects(Alternative 2) Revenues $fill in the blank…
Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a book value of $279,100 (original cost of $399,700 less accumulated depreciation of $120,600) for $277,600, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,700 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 $26,200. 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 $fill in the blank bed17bfd1ffaf9e_1 $fill in the blank bed17bfd1ffaf9e_2…
Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a book value of $282,600 (original cost of $401,600 less accumulated depreciation of $119,000) for $276,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,500 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 $26,100. 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) $ $ $ b. On the basis of…
Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less accumulated depreciation of $120,400) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,300 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 LeaseMachinery(Alternative 1) SellMachinery(Alternative 2) DifferentialEffects(Alternative 2) Revenues ? ? ? Costs ? ? ?…
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…
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 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…
Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $284,000 (original cost of $402,000 less accumulated depreciation of $118,000) for $275,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,900 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 $26,000. Question Content Area 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 AnalysisLease Machinery (Alt. 1) or Sell Machinery (Alt. 2)May 25 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential Effecton…
Differential Analysis for a Lease-or-Sell Decision Matrix Construction Company is considering selling excess machinery with a book value of $75,000 (original cost of $200,000 less accumulated depreciation of $125,000) for $60,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $75,000 for five years, after which it is expected to have no residual value. During the period of the lease, Matrix Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $21,500. a. Prepare a differential analysis, dated May 25 to determine whether Matrix 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 Effecton Income(Alternative…
Differential Analysis for a Lease-or-Sell Decision Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $36,500. Question Content Area a. Prepare a differential analysis, dated May 25 to determine whether Rhombus 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. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
Differential Analysis for a Lease-or-Sell Decision Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $36,500. a. Prepare a differential analysis, dated May 25 to determine whether Rhombus 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…

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