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? (Points: 5)
$80,000
$120,000
$180,000
$240,000

First you need to calculate the Net Book Value of the equipment at the beginning of year 4. It is the cost minus the accumulated depreciation, which is the depreciation per year times 3 years.

Next you divide the Net Book Value by 2 to get the depreciation expense per year for the remaining 2 years of useful life.