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 the data presented, would it be advisable to lease or sell the machinery?
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 the data presented, would it be advisable to lease or sell the machinery?
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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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
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 the data presented, would it be advisable to lease or sell the machinery?
Sell the machinery
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