Differential Analysis for a Lease-or-Sell Decision

Sure-Bilt Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $400,500 less accumulated depreciation of $119,000) for $274,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $284,300 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,900.

Question Content Area

a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank 6ac63506700b04a_1	$fill in the blank 6ac63506700b04a_2	$fill in the blank 6ac63506700b04a_3
Costs	fill in the blank 6ac63506700b04a_4	fill in the blank 6ac63506700b04a_5	fill in the blank 6ac63506700b04a_6
Income (Loss)	$fill in the blank 6ac63506700b04a_7	$fill in the blank 6ac63506700b04a_8	$fill in the blank 6ac63506700b04a_9

Question Content Area

b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.

Lease the machinerySell the machinery

The net

gainloss

from selling is $fill in the blank 3d3e7f05bff3fc5_3.