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

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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