Wilson owned equipment with an estimated life of 10 years when it was acquired f
ID: 2427168 • Letter: W
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: 2012 2013 2014 Net income $100,000 $120,000 $130,000 Dividends 40,000 50,000 60,000 Compute the gain on transfer of equipment reported by Wilson for 2012. A) $19,500. B) $18,250. C) $11,750. D) $38,250.
Explanation / Answer
Book value as on January 1, 2012 = $50,000
Remaining useful life of equipment = 10 years
Annual depreciation = $50,000 / 10,000 = $5,000
Depreciation from January 1, 2012 to March 31, 2012 = $5,000 * 3 months / 12 months = $1,250
Book value of equipment as on April 1, 2012 = $50,000 - $1,250 = $48,750
Sales value of equipment = $68,250
Gain on transfer of equipment = $68,250 - $48,750 = $19,500
Hence answer is A) $19,500/
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