Inman Construction Company is considering selling excess machinery with a book v
ID: 2452822 • Letter: I
Question
Inman Construction Company is considering selling excess machinery with a book value of $283,300 (original cost of $401,500 less accumulated depreciation of $118,200) for $275,100, less a 5% brokerage commission. Alternatively, the machinery can be leased 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, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,500.
A. Prepare a differential analysis, dated January 3, 2014, to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery
Explanation / Answer
Imam should sell the machinery , Excess gain from selling is $745.
Note: Cost of selling is Brokerage commission: 5% of selling Price, 5%*275100 = $13755
Particulars Lease Equipment Alternative- 1 Sell Equipment Alternative-2 Differential analysis Alternative- 2 Revenue 286100 275100 -11000 Less: Cost 25500 13755 -11745 Income (Loss) 260600 261345 745