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Keating Co. is considering disposing of equipment with a cost of $52,000 and accumulated depreciation of...

Keating Co. is considering disposing of equipment with a cost of $52,000 and accumulated depreciation of $36,400. Keating Co. can sell the equipment through a broker for $26,000 less 9% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $50,000. Keating will incur repair, insurance, and property tax expenses estimated at $9,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is

a. $20,808

b. $26,010

c. $17,340

d. $12,138

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Answer #1

Differential income from lease alternative

Sell lease Differential effect on income
Revenue 26000 50000 24000
Expense 26000*9% = -2340 -9000 -6660
Income (loss) 23660 41000 17340

So answer is c) $17340

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