Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $400,900 less accumulated depreciation of $121,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,200 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 $25,100. 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 Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Differential Effect Lease Machinery Sell Machinery on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Income (Loss) Feedback TCheck My Work Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the revenues, costs, and income (k s) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain Y from selling is s
Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $400,900 less accumulated depreciation of $121,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,200 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 $25,100. 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 Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Differential Effect Lease Machinery Sell Machinery on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Income (Loss) Feedback TCheck My Work Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the revenues, costs, and income (k s) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain Y from selling is s
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $400,900 less accumulated depreciation of $121,600) for
$274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,200 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 $25,100.
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 Analysis
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
May 25
Differential Effect
Sell Machinery
(Alternative 2)
Lease Machinery
on Income
(Alternative 2)
(Alternative 1)
Revenues
Costs
Income (Loss)
Feedback
T Check My Work
Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the
revenues, costs, and income (k s) by subtracting alternative 1 from alternative 2.
b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
Sell the machinery
The net gain
- v from selling is $
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