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 amortization of gain through a depreciation adjustment for 2014 for consolidation purposes.
A) $1,925.
B) $1,825.
C) $2,000.
D) $1,500.
E) $7,000.

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 amortization of gain through a depreciation adjustment for 2014 for consolidation purposes.
A) $1,925. 
B) $1,825. 
C) $2,000. 
D) $1,500. 
E) $7,000.

Quizplus · Accepted Answer

Amortization of Gain on Transfer of Equipment = $19,500 Gain/9yrs 9 mos. Remaining Useful Life = $2,000 per yr. × 12 mos. of 2014 = $2,000 Depreciation Adjustment for 2014

Wilson Owned Equipment with an Estimated Life of 10 Years