On January 1, 2021, Smiley Company, an 80% owned subsidiary of Castro, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Castro in exchange for $96,000 cash. At the date of transfer, Smiley's records carried the equipment at a cost of $150,000 less accumulated depreciation of $60,000. Straight-line depreciation is used. Smiley reported net income of $32,000 for 2021. In preparing financial statements for 2021, how does this transfer affect the computation of consolidated net income?

Choices:

Increase net income by $1,000.

Decrease net income by $7,000.

Increase net income by $5,000.

Decrease net income by $5,000.

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