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?

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Definitions:

Convergence

The process of coming together or the degree to which two or more things converge, often used in the context of eyesight or technologies.

Motion Parallax

A depth cue that involves objects at varying distances moving across the observer's field of vision at different speeds.

Autokinetic Effect

A visual phenomenon where a stationary small point of light in a dark room appears to move because of involuntary eye movements.

Moving Light

Moving light refers to any source of illumination that changes its position, which can be used in various contexts such as in theatrical lighting or visual experiments.