On January 1, Year 4, Place Inc. acquired an 80 percent interest in Setting Co. for $800,000 cash. At that time, Setting's assets and liabilities had carrying amounts equal to fair values, except for the following:

InventoryUndervalued by $75,000Turns over 6 times a yearPlanet and equipmentUndervalued by $50,000Remaining useful life: 10 yearsBonds payableOvervalued by $40,000Maturity date: December 31, Year 8

The premium/discount on bonds payable is amortized on a straight-line basis.

At January 1, Year 4, Setting had 100,000 common shares outstanding with a carrying amount of $550,000 and retained earnings of $50,000.

The abbreviated financial statements of Place and Setting on December 31, Year 6, are as follows:

STATEMENTS OF FINANCIAL POSITIONPlaceSettingPlant and equipment (net)$1,250,000$1,555,000Investment in Setting800,000Current assets950,000800,000$3,000,000$2,355,000Common shares$1,000,000$550,000Retained earnings1,500,000725,00010% bonds payable800,000Current liabilities500,000280,000$3,000,000$2,355,000

COMBINED INCOME AND RETAINED EARNINGS STATEMENTSPlaceSettingSales$2,500,000$900,000Cost of goods sold1,200,000330,000Expenses400,000220,0001,600,000550,000Net operating income900,000350,000Dividends received from Setting100,000Profit1,000,000350,000Retained earnings, Jan. 1, Year 6800,000500,0001,800,000850,000Dividends declared and paid300,000125,000Retained earnings, Dec. 31, Year 6$1,500,000$725,000

Which of the following is the amount of the fair value increment relating to plant and equipment (net) that will be recognized as an increase to depreciation expense on Place's consolidated income statement for the year ended December 31, Year 5?

Multiple Choice

• $4,000
• $5,000
• $8,000
• $32,000