1) Eclipse Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for $221,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $216,000 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 $14,200.

a) How much in dollars and cents is the brokerage commission expense to our firm if we sell the machinery?

b) After the brokerage commission expense if the firm sells the excess machinery, how much will they net or clear?

c) How much will the firm net or clear if they continue to own the machinery, lease it for a total of $216,000 Rent income for the total five year period, and have to pay a total of $14,200 over the five year period for repairs and other ownership costs?

2)

a) What is the total yearly savings on expenses if the firm buys the new machine? Remember although the firm will lay off all labor and save $51,000 per year on direct labor, some of the other costs go up with the new machine?

b) What is the grand total of those yearly savings for the 5 years life of the new machine if the firm buys that new machine

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $180,000. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Proposed operations Operations Sales $205,000 $205,000 72,000 Direct materials 72,000 Direct labor 51,000 18,000 Power and maintenance 5,000 Taxes, insurance, etc. 4,000 1,500 Selling and administrative expenses 45,000 45,000 Total expenses $174,500 $139,000