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:

Insight Learning

A form of problem solving where the solution suddenly comes to the individual in a sort of “aha” moment, without trial and error.

Latent Learning

Learning that occurs without reinforcement and is not immediately evident in behavior until a stimulus is presented that calls it into action.

Generalization

The psychological process by which a response is made to a stimulus similar to but not identical to the original conditioned stimulus.

Latent Learning

Learning that occurs without any obvious reinforcement and is not immediately demonstrated in the learner's behavior.