Differential Analysis for a Lease-or-sell Decision

Stowe Construction Company is considering selling excess machinery with a book value of $281,800 (original cost of $401,300 less accumulated depreciation of $119,500) for $277,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $284,400 for 5 years, after which it is expected to have no residual value. During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,500.

Question Content Area

a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Line Item Description	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$Revenues	$Revenues	$Revenues
Costs	Costs	Costs	Costs
Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)