Lease or Sell

Bullwinkle Company owns equipment with a cost of $367,000 and accumulated depreciation of $55,900 that can be sold for $276,200, less a 4% sales commission. Alternatively, Bullwinkle Company can lease the equipment for 3 years for a total of $284,600, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Bullwinkle Company on the equipment would total $16,300 over the 3-year lease.

Question Content Area

a. Prepare a differential analysis on October 29 as to whether Bullwinkle Company should lease (Alternative 1) or sell (Alternative 2) the equipment. If required, use a minus sign to indicate a loss.

Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) October 29

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

Question Content Area

b. Should Bullwinkle Company lease (Alternative 1) or sell (Alternative 2) the equipment?

Lease the equipment OR Sell the equipment