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

question 52

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 depreciation can be claimed by Subsidiary Corporation in the first year it uses the machine?

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Definitions:

Operant Conditioning

A process of teaching in which behavior modification occurs as a result of either encouraging rewards or imposing punishments.

Ivan Pavlov

A Russian physiologist known for his work in classical conditioning, demonstrating how stimuli can trigger conditioned responses.

Extinction

In psychology, it refers to the gradual weakening and eventual disappearance of a conditioned response.

Negative Punishment

A behavioral modification technique involving the removal of a desirable stimulus to decrease the likelihood of a behavior recurring.