Financial and Managerial Accounting
9th Edition
ISBN: 9781264098583
Author: Wild, John J.
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 10, Problem 23E
To determine
Concept Introduction:
Lease: A lease is an agreement between the lessor (0wner) and the lessee (tenant) for the right to use the asset by the lessee for a period of time and rent. Leases are classified as finance lease and operating leases, in either case, the lease is recorded at the present value of lease payments.
The present value of lease options to identify the best option.
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provide answer with calculation and provide correct and incorrect option explanation
Differential Analysis for a Lease-or-buy Decision
Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $3,120. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $390 per year over the 4-year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $1,360 per year for 4 years, with no additional costs.
Question Content Area
a. Prepare a differential analysis dated February 12 to determine whether Moffett Industries should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a “lease or buy” decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0".
Differential AnalysisLease (Alt. 1) or Buy (Alt. 2) EquipmentFebruary 12
Line Item Description
LeaseEquipment(Alternative 1)…
Differential Analysis for a Lease-or-buy Decision
Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $3,360. The freight and installation costs for the equipment are $600. If purchased, annual repairs and maintenance are estimated to be $390 per year over
the 4-year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $1,540 per year for 4 years, with no additional costs.
a. Prepare a differential analysis dated February 12 to determine whether Moffett Industries should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the equipment
user, as opposed to the equipment owner.) If an amount is zero, enter "0".
Costs:
Differential Analysis
Lease (Alt. 1) or Buy (Alt. 2) Equipment
February 12
Line Item Description
Purchase price
Freight and installation
Repair and…
Chapter 10 Solutions
Financial and Managerial Accounting
Ch. 10 - Prob. 1QSCh. 10 - Prob. 2QSCh. 10 - Prob. 3QSCh. 10 - Prob. 4QSCh. 10 - Prob. 5QSCh. 10 - Prob. 6QSCh. 10 - Prob. 7QSCh. 10 - Prob. 8QSCh. 10 - Prob. 9QSCh. 10 - Prob. 10QS
Ch. 10 - Prob. 11QSCh. 10 - Prob. 12QSCh. 10 - Prob. 13QSCh. 10 - Prob. 14QSCh. 10 - Prob. 15QSCh. 10 - Prob. 16QSCh. 10 - Prob. 17QSCh. 10 - Prob. 18QSCh. 10 - Prob. 19QSCh. 10 - Prob. 20QSCh. 10 - Prob. 21QSCh. 10 - Prob. 22QSCh. 10 - Prob. 23QSCh. 10 - Prob. 24QSCh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Prob. 21ECh. 10 - Prob. 22ECh. 10 - Prob. 23ECh. 10 - Prob. 1PSACh. 10 - Prob. 2PSACh. 10 - Prob. 3PSACh. 10 - Prob. 4PSACh. 10 - Prob. 5PSACh. 10 - Prob. 6PSACh. 10 - Prob. 7PSACh. 10 - Prob. 8PSACh. 10 - Prob. 9PSACh. 10 - Prob. 10PSACh. 10 - Prob. 11PSACh. 10 - Prob. 12PSACh. 10 - Prob. 13PSACh. 10 - Prob. 1PSBCh. 10 - Prob. 2PSBCh. 10 - Prob. 3PSBCh. 10 - Prob. 4PSBCh. 10 - Prob. 5PSBCh. 10 - Prob. 6PSBCh. 10 - Prob. 7PSBCh. 10 - Prob. 8PSBCh. 10 - Prob. 9PSBCh. 10 - Prob. 10PSBCh. 10 - Problem 10-10BB Effective Interest: Amortization...Ch. 10 - Prob. 12PSBCh. 10 - Prob. 13PSBCh. 10 - Prob. 10SPCh. 10 - Prob. 1.1AACh. 10 - Prob. 1.2AACh. 10 - Prob. 1.3AACh. 10 - Prob. 2.1AACh. 10 - Prob. 2.2AACh. 10 - Prob. 2.3AACh. 10 - Prob. 3.1AACh. 10 - Prob. 3.2AACh. 10 - Prob. 3.3AACh. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is the issue price of a $2,000 bond sold at...Ch. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Prob. 1BTNCh. 10 - Prob. 2BTNCh. 10 - Prob. 3BTNCh. 10 - Prob. 4BTN
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Similar questions
- Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?arrow_forwardUse the information in RE20-6. However, assume that there is no bargain purchase option and that Montevallo guarantees the 20,000 estimated residual value at the end of the 10-year lease. Montevallo estimates that it is probable that it will have to pay 15,000 cash due to the residual value guarantee. Calculate the present value of the lease payments. Round your answer to the nearest dollar.arrow_forwardAssume you can lease an item you need for a project for GH¢950/day. To purchase the item, thecost is GH¢13,000 plus a daily operational cost of GH¢ 300/day.a. How long will it take for the purchase cost to be the same as the lease cost? Critically discuss the appropriate make or buy decisions to be made in case the item will beused for; i. ii. iii. At most 15 daysMore 15 days but not exceeding 20 daysAt least 20 daysarrow_forward
- Question number 7. Complete the amortization schedule.arrow_forwardQuestion 1 Seroja Berhad (Seroja) wishes to evaluate the following two alternatives available to acquire a machine: Lease Alternative Seroja can lease the machine under a 5-year lease requiring lease payment of RM5,000 at the beginning of each year. All maintenance costs will be borne by the lessor and the insurance and other costs will be borne by the lessee. "Borrowing to Buy" Alternative The machine costs RM20,000 and will have a 5-year life. The purchase will be financed by a 5- year, 15% interest. Seroja will pay RM1,000 per year for a service contract that covers insurance and other costs. Seroja Berhad plans to keep the machine and use it beyond its 5-year life. The machine will be depreciated as given below: Year Depreciation RM 1 5,000 2 4,000 3 3,000 4 2,000 5 1,000 Given that the corporate tax rate is 30%. From the above information you are required to answer the following questions. a. Give explanation to Seroja on ONE (1) benefit of leasing. b. Prepare the Cash Flows…arrow_forwardPlease avoid solution image based thanxarrow_forward
- Using the following information, what is the cost to lease a car? (Assume there are no charges for damage at the end of the lease.) Security deposit Monthly lease payment Opportunity cost of security deposit End-of-lease charges $300 $300 per month for a five-year lease 300 x loan period (in years) × 2% interest 500 Multiple Choice $18,000 $18,530 $18,560 $18,830arrow_forwardDifferential Analysis for a Lease or Buy Decisionarrow_forwardi need the answer quicklyarrow_forward
- Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?arrow_forwardplease dont give solution image based thanxarrow_forwardDon't give answer in imagearrow_forward
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