port inc owns 100 of salem inc on january 1 2006 port sold salem delivery equipment 605559

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

1. 20% of the gain on sale.
2. 33 1/3% of the gain on sale.
3. 50% of the gain on sale.
4. 100% of the gain on sale.