Every Three Years a Major Component (Part #45)in a Machine

question 22

Essay

Every three years a major component (part #45)in a machine must be replaced. By doing this regular but expensive repair the machine can be used for 15 years. If Part #45 were not replaced, the machine could be used only for a maximum of six years. When the machine was originally purchased for $5,000,000 it was set up as one asset and depreciated over its estimated useful life of 15 years. Recently this repair was completed at a cost of $700,000 for Part #45. The earlier Part #45 cost $550,000 when it was installed three years ago. Neither the old nor the new Part #45 has any residual value.
Prepare the necessary journal entry to record the transaction. Provide a short justification for your chosen treatment.

---

Definitions:

Dumping

The practice of a company selling a product in a foreign market at a price lower than its cost of production or lower than the price in its domestic market.

Diversification

An investment strategy that involves spreading investments among various financial instruments, industries, and other categories to reduce risk.

Protection

Economic policy measures, such as tariffs and quotas, used to limit imports in order to protect domestic industries.

Worse Off

A situation in which an individual or group is in a less favorable or more disadvantageous position than before.