Question
Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000
Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Companys costs of repairs, insurance, and property tax expenses are expected to be $36,500.
a. Prepare a differential analysis, dated May 25 to determine whether Rhombus 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.
Differential Analysis | |||
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) | |||
May 25 | |||
Lease Machinery (Alternative 1) | Sell Machinery (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | fill in the blank | fill in the blank | fill in the blank |
Costs | fill in the blank | fill in the blank | fill in the blank |
Profit (loss) | fill in the blank | fill in the blank | fill in the blank |
b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
The net from selling is $fill in the blank 3fb0fe0b904bf81_3.
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