Question 1 - Hadley Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $600,000 and accumulated depreciation to date totals $460,000. An offer has been received to lease the machine for its remaining useful life for a total of $290,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses that would be incurred by Hadley on the machine during the period of the lease are estimated at $75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission.
Required: Prepare a differential analysis report, dated June 15. Use a minus sign to indicate costs or a negative impact on income. Below the report, indicate whether the equipment should be leased or sold.
Question 2 - Bentz Co. has two divisions, A and B. Invested assets and condensed Income statement data for each division for the year ended December 31, are as follows:
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Division A
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Division B
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Revenues
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$190,000
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$125,500
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Operating expenses
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112,500
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92,750
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Service department changes
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29,500
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12,625
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Invested assets
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225,000
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99,000
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(a) Prepare condensed income statements for the past year for each division.
(b) Using the DuPont formula, determine the profit margin, investment turnover, and rate of return an investment for each division. Round the profit margin percentage to two decimal places and investment turnover to four decimal places.