Question

James, Inc. discovered that equipment purchased three years ago for $600,000 will not last as long as originally estimated. The firm was depreciating the equipment at the rate of $80,000 per year with an estimated salvage value of $40,000. New estimates indicate that the equipment will last a total of five years with no salvage value. How much should James Inc. record as depreciation in year four?

Answer 1

The 3 years depreciation is: (3*80,000): 240,000

The Asset Net Book Value at the end of third year is: (600,000-240,000) : 360,000

Depreciation in Year: 4: (360,000/5) : 72,000 / Year.

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