Question

Keating Co. is considering disposing of equipment with a cost of $76,000 and accumulated depreciation of $53,200. Keating Co. can sell the equipment through a broker for $29,000, less a 5% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $48,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 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 a.$10,140 b.$5,915 c.$8,450 d.$12,675

Answer 1

Answer:

c.$8,450

Explanation:

Calculation for what The net differential income from the lease alternative is

Using this formula

Net differential income = Lease amount - estimated expenses - net sale of equipment

Let plug in the formula

Net differential income= $48,000-$12,000-($29,000-($29,000*5%)

Net differential income=$48,000-$12000-($29,000-$1,450)

Net differential income=$48,000-$12000-$27,550

Net differential income=$47,000-$39,550

Net differential income= $8,450

Therefore The net differential income from the lease alternative is $8,450