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16 June, 08:22

Keating Co. is considering disposing of equipment that cost $72,000 and has $50,400 of accumulated depreciation to date. Keating Co. can sell the equipment through a broker for $27,000 less a 10% 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 $9,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential profit or loss from the sell alternative is a

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  1. 16 June, 11:37
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    Net differential income $12,700

    Explanation:

    The computation of net differential profit or loss is shown below:-

    First we need to compute the income if equipment sold through broker

    Sales consideration $27,000

    Less Commission $2,700

    ($27,000 * 10%)

    Net income $24,300

    Now, we need to compute the income if offer is lease is accepted

    Lease amount $46,000

    Less: Repair, insurance

    and property expenses $9,000

    Net income $37,000

    Net differential profit from the lease alternative = Income if offer is lease is accepted - Income if equipment sold through broker

    = $37,000 - $24,300

    = $12,700
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