A start-up venture in its first year of business needs equipment that cost $120,000.  Because of changes in technologies, it has a maximum service life of 2 years and zero residual value.  They have 3 options (answer each question separately, without paraphrasing or quoting from the book, and no journal entries):

1. Buy the equipment for cash.

What are the pros and cons of the option.

What is the effect on the income statement, balance sheet and cash flow statements at the time of purchase and over time.

2. Rent the equipment month to month at $7,000 per month

What are the pros and cons of the option.

What is the effect on the income statement, balance sheet and cash flow statements at the time of purchase and over time.

3. Sign a 2 year lease agreement for 6,000 a month for 24 months 

What are the pros and cons of the option

What is the effect on the income statement, balance sheet and cash flow statements at the time of purchase and over time.

4.  Recommend only one of the 3 options and explain why you have made the choice.

Answer rating: 100% (QA)

1 Buy the equipment for cash Pros Ownership The company will own the equipment outright giving them full control and flexibility over its use No Monthly Payments There are no ongoing monthly payments ... View the full answer