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6 Keating Co. is considering disposing of equipment with a cost of $53,000 and accumulated depreciation...

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Keating Co. is considering disposing of equipment with a cost of $53,000 and accumulated depreciation of $37,100. Keating Co. can sell the equipment through a broker for $30,000, less a 6% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 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. $6,800

b. $10,200

c. $4,760

d. $8,160

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Answer #1

Differential analysis report

Differential revenue from alternatives:
Revenue from lease 47,000
Proceeds from sale - 30,000
Differential revenue from lease 17,000
Differential cost of alternatives:
Repairs, insurance and property tax expenses from lease 12,000
Commission on sales - 1,800
Differential cost of lease - 10,200
Net differential gain from lease alternative $6,800

Correct option is (a)

Commission on sales = 30,000 x 6%

= $1,800

Kindly comment if you need further assistance. Thanks

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