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:

Independent Variable

A variable in an experiment that is manipulated or changed by the researcher to observe its effect on the dependent variable.

Observed Value

The actual value measured or recorded during an experiment or survey.

Dependent Variable

In an experiment, the dependent variable is the variable that is being tested and measured, and is 'dependent' on the independent variable.

Residual

The difference between the observed value and the estimated value of the quantity of interest.