Question

Keating Co. is considering disposing of equipment that cost $65,000 and has $45,500 of accumulated depreciation to date. Keating Co. can sell the equipment through a broker for $28,000 less a 8% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $45,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential profit or loss from the sell alternative is a

a. $9,240 loss

b. $11,088 profit

c. $13,860 profit

d. $6,468 loss

Answer 1

Solution :

The Answer is (a) $ 9,240 Loss

Working :

Income from Sale :

Sales Value	$ 28,000
Less : Commission ($ 28,000 * 8%)	$ 2,240
Net Income	$ 25,760

Income from leasing :

lease consideration	$ 45,000
Less : Repair, Insurance and property tax expenses	$ 10,000
Net Income	$ 35,000

Loss from Sell alternative = $ 25,760 - $ 35,000

= $ (9,240)

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