Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years.
On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends:
Compute the gain on transfer of equipment reported by Wilson for 2012.
A) $19,500.
B) $18,250.
C) $11,750.
D) $38,250.
E) $37,500.

Question

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years.
On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: 
Compute the gain on transfer of equipment reported by Wilson for 2012.
A) $19,500. 
B) $18,250. 
C) $11,750. 
D) $38,250. 
E) $37,500.

Quizplus · Accepted Answer

January 1, 2012 BV $50,000/10yrs Expected Useful Life = $5,000 per yr Depreciation Expense. Sale on April 1, 2012 required Three Months Depreciation Expense leaving a BV on Sale of $48,750. Sale Price of $68,250 - BV on Sale of $48,750 = $19,500 Gain on Sale

Wilson Owned Equipment with an Estimated Life of 10 Years