12..... Keating Co. is considering disposing of equipment with a cost of $58,000

Question

12..... Keating Co. is considering disposing of equipment with a cost of $58,000 and accumulated depreciation of $40,600. Keating Co. can sell the equipment through a broker for $26,000 less 7% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $46,000. Keating will incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is

Explanation / Answer

Calculation of Differential Income

Step 1 - Calculation of income

Step 2 - Differential Income Under Lease alternative

Sell Alternative Amount Lease Alternative Amount Sale value $26000 Lease Rental Income $46000 Less : Commission on sales ($26000*7%) $1820 Less : Rent, Repair, Property taxes expenses $8000 Net Income $24180 Net Income $38000

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