Parent Corporation Purchases a Machine (A Five-Year Property)for $20,000

question 26

Essay

Parent Corporation purchases a machine (a five-year property)for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%-owned corporation (Subsidiary)for $18,000. Subsidiary immediately commences depreciating the machine as a five-year property using the regular MACRS rules.
What gain is reported by Parent Corporation in the first year that Subsidiary Corporation depreciates the machine?

---

Definitions:

Cave Roof

The upper surface or ceiling of a cave, formed by natural geological processes.

Sinkhole

A depression or hole in the ground caused by the collapse of a surface layer, often resulting from the dissolution of limestone by water.

Caldera

A large crater formed by a volcanic eruption, resulting from the collapse of land following the emptying of the volcano's magma chamber.

Dissolved Limestone

The process by which limestone (calcium carbonate) is dissolved into groundwater, contributing to karst landscapes and features such as caves.