On 3 June 2016, Premier Company bought an equipment at $5,000,000. The useful life of the...

On 3 June 2016, Premier Company bought an equipment at $5,000,000. The useful life of the equipment was estimated to be five years, with a residual value of $500,000. The company uses straight-line depreciation method with half-year convention and adjusts its accounts annually with the year-end on 31 December. Consider the following as two independent assumptions:

(a) Assuming that on 8 May 2019, the company sold the equipment for $1,900,000, receiving $600,000 cash and a two-year, 10% note receivable for the remaining balance. Prepare the journal entries to record the disposal of the equipment on 8 May 2019.

(b) Assuming that on 1 January 2021, the company had added a new component of $300,000 in the equipment to enhance the speed. The company revised the estimated useful life of the equipment from five years to seven years with residual value of $400,000.

(i) Compute the book value of the equipment at 1 January 2021 after upgrade.

(ii) Prepare the journal entries to record the depreciation expense for 2021.

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Expert Solution

ekkarill92 answered 1 year ago

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