On 10 January 2017, Rainy Company purchased $1,000,000 equipment, with estimated useful life of 120 months and no residual value. Straight-line method was adopted. For partial years, depreciation in the year of acquisition/upgrade/disposal is recorded to the nearest whole month. The Company records annual depreciation expense at the year-end date, 31 December.

On 28 June 2019, the company spent $100,000 to upgrade the above equipment in order to enhance the capacity. The company paid $5,000 to employ a technician to upgrade the equipment and paid $1,000 interest to finance the upgrade. The company decided to extend the estimated useful life to 150 months and revise the estimated residual value to $75,000 on the same date.

(a)Calculate the book value of the equipment after the upgrade. Show your workings.

(b)Calculate the annual depreciation expense of the equipment in 2019. Show your workings.