Instructions Eclipse Construction Company is considering selling excess machiner
ID: 2568980 • Letter: I
Question
Instructions Eclipse Construction Company is considering selling excess machinery with a book value of $392,400 (original cost of $503,100 less accumulated depreciation of $110,700) for $224,600, less a 4% brokerage commission. Alternatively, the machinery can be leased for a total of $219,670 for five years, after which it is expected to have no residual value. During the period of the lease, Eclipse Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $12,404. Required: A. Prepare a differential analysis, dated April 16 to determine whether Eclipse should lease (Alternative 1) or sell (Alternative 2) the machinery. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "O". A colon (:) will automatically appear if required. B. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.Explanation / Answer
A.
B. It is advisable to sell the achinery
The net gain from the selling is $8,350
Differential Analysis Lease Machinery (Alternative 1) or Sell Machinery (Alternative 2) April 16 1 Lease Machinery Sell Machinery Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 3 Revenues 219,670 224,600 4,930 4 Costs (12,404) (8,984) 3,420 5 Income (loss) 207,266 215,616 8,350