Keating Co

question 158

Multiple Choice

Keating Co.is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date.Keating Co.can sell the equipment through a broker for $25,000 less 5% commission.Alternatively,Gunner Co.has offered to lease the equipment for five years for a total of $48,750.Keating will incur repair,insurance,and property tax expenses estimated at $8,000 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) $17,000
• B) $7,000
• C) $27,000
• D) $14,500

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Definitions:

Sales Returns

Goods returned by buyers after sale due to defects, dissatisfaction, or other reasons, which are deducted from total sales revenue.

Unearned Revenue

Money received by an entity for a service or product yet to be provided or delivered.

Periodic Inventory System

An inventory accounting system where updates are made to inventory levels and cost of goods sold at specific periods.

Worksheet

A document used by accountants to bring together all the data for financial statements, making adjustments and closing entries.