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, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years.
On April 1, 2010 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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$
-Compute the gain on transfer of equipment reported by Wilson for 2010.
A) $19,500.
B) $18,250.
C) $11,750.
D) $38,250.
E) $37,500.

Question

Quizplus · Accepted Answer

The gain on transfer is calculated as the selling price minus the book value at the time of sale. The book value on January 1, 2010, was $50,000. The equipment was sold for $68,250. Therefore, the gain is $68,250 - $50,000 = $18,250.

Wilson Owned Equipment with an Estimated Life of 10 Years