SUBSEQUENT EXPENDITURES AND DEPRECIATION. IWay Corporation installed new telecommunication equipment in January 19x1. The equipment cost

$120,000. At the time of installation, [Way estimated that it would have an expected life of 7 years and a residual value of $10,000. By 19x3 the business had expanded and modifications were necessary. At the end of 19x3, [Way spent $45,000 to modify the equipment. The modified equipment was put into service on the first business day of 19x4. [Way estimates that the expected life of the modified equipment from January 19x4 is 5 years and the new residual value is $5,000.

REQUIRED:

1. Compute the accumulated straight-line depreciation for the equipment at the time the modifications were made (3 years after acquisition).

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

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