Lease or Sell

Kincaid Company owns equipment with a cost of $363,600 and accumulated depreciation of $54,900 that can be sold for $273,600, less a 4% sales commission. Alternatively, Kincaid Company can lease the equipment for three years for a total of $287,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Kincaid Company on the equipment would total $16,900 over the three year lease.

Question Content Area

a. Prepare a differential analysis on August 7 as to whether Kincaid 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) August 7

	Lease Equipment (Alternative 1)	Sell Equipment (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$______	$______	$______
Costs	______	______	______
Profit (Loss)	$______	$______	$______

Question Content Area

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

Lease the equipment/Sell the equipment