Expenditures after Acquisition and Depreciation}

National Bank installed a wireless encryption device in January 2014. The device cost \(\$ 180,000\). At the time the device was installed, National Bank estimated that it would have an estimated life of eight years and an estimated residual value of \(\$ 10,000\). By 2017, the bank's business had expanded and modifications to the device were necessary. At the beginning of 2018, National Bank spent \(\$ 45,000\) on modifications for the device. National Bank estimates that the new estimated life of the device (from January 2018) is six years and that the new residual value is \(\$ 5,000\). National Bank uses the straight-line method of depreciation. Had National Bank not modified the device, processing delays would have caused it to lose at least \(\$ 100,000\) of business per year.

\section*{Required:}

1. Compute the accumulated depreciation for the device at the time the modifications were made (four years after acquisition).

2. What is the book value of the device before and after the modification?

3. What will be the annual straight-line depreciation expense for the device after the modification?

4. CONCEPTUAL CONNECTION The bank's president notes, "Since the after-modification depreciation expense exceeds the before-modification depreciation expense, this modification was a poor idea." Comment on the president's assertion.

\section*{Exercise