MedEquip Inc. acquired a piece of medical equipment on January 1, 20X1, for $800,000. The equipment has an estimated residual value of $50,000 and an estimated useful life of 10 years. MedEquip Inc. uses the straight-line method for depreciation. During the year, MedEquip Inc. recorded the following transactions: On July 1, 20X1, the company upgraded the equipment with additional features costing $120,000, which extended the useful life by 2 years. On December 31, 20X1, MedEquip Inc. determined that the equipment’s residual value should be revised to $30,000, considering market conditions.

Required:

1. Calculate the annual depreciation expense for the year ending December 31, 20X1, before and after the upgrade and residual value revision.
2. Prepare the necessary journal entries to record the depreciation for the year and the upgrade.
3. Discuss the impact of the upgrade and residual value revision on the company’s financial statements.
4. Explain how the changes in estimates will affect future depreciation calculations.