Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. 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) $ $ $ b. Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?
Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. 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) $ $ $ b. Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 1BE: Lease or sell Plymouth Company owns equipment with a cost of 600,000 and accumulated depreciation of...
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Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease.
a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment.
| 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 | |||
| $ | $ | $ |
b. Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the equipment?
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