Port, Inc. owns 100% of Salem, Inc. On January 1, 2006, Port sold Salem delivery equipment at a gain. Port had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Salem is using a three-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem’s recorded depreciation expense on the equipment for 2006 will be decreased by
- 20% of the gain on sale.
- 33 1/3% of the gain on sale.
- 50% of the gain on sale.
- 100% of the gain on sale.