Question

Instructions Hadley Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $800,000 and accumulated depreciation to date totals $480.000. An offer has been received to lease the machine for its remaining useful life for a total of S290,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses that would be incurred by Hadley on the machine during the period of the lease are estimated at $75.800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission Required: Prepare a differential analysis report dated June 15 Use a minus sign to indicate costs or a negative impact on income. Below the report, indicate whether the equipment should be leased or sold. Differential Analysis Prepare a differential analysis report, dated June 15. Use a minus sign to indicate costs or a negative impact on income. Below the report, indicate whether the equipment should be lessed or sold Differential Analysis Proposal to Lease (Alternative 1) or Sell Equipment (Alternative 2) June 15 Lease Equipment (Alterative 1) Sell Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 3 Costs 4 Income (Loss) The equipment should be neither O sold leased

Answer 1

Differential Analysis
Proposal to Lease (Alt.1)or Sell (Alt.2)Equipment
Jun-15
	Lease Equipment (Alternative 1)	Sell Equipment (Alternative 2)	Differential effects on income( Alternative 2)
Revenues	290,000	230,000	-60,000
Costs	-75800	-23,000	52,800
Income (Loss)	$                 214,200.00	$                  207,000.00	$                        (7,200.00)

The equipment should be leased.

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