Lease or Sell Bullwinkle Company owns equipment with a cost of $365,300 and accu

Question

Lease or Sell Bullwinkle Company owns equipment with a cost of $365,300 and accumulated depreciation of $53,500 that can be sold for $277,000, less a 4% sales commission. Alternatively, Bullwinkle 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 Bullwinkle Company on the equipment would total $15,900 over the three year lease. a. Prepare a differential analysis on February 18, as to whether Bullwinkle Company should lease (Alternative 1) or sell (Alternative 2) the equipment. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Equipment February 18 Lease Equipment (Alternative 1) Sell Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs Income (Loss) b. Should Bullwinkle Company lease (Alternative 1) or sell (Alternative 2) the machine?

Explanation / Answer

Differential Analysis Lease Sell Differential Equipment Equipment Effect on Income Revenues 287000 265920 -21080 Cost 15900 0 15900 Income /(Loss) 271100 265920 -5180 Bullwinkle company shall LEASE the equipment

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