Question

Johnson Certified bought a fiber optic cable for $975,000. The estimated life of the cable is 20 years, after which its salvage value is estimated to be $5,000. Using the straight-line method, what is the annual depreciation to the nearest cent?

Answer 1

Remember that straight line depreciation can be calculated using the formula:

`D_(a)= (C-R)/(U)`
where

`D_(a)` is the annual depreciation

`C` is cost

`R` is the salvage value

`U` is the estimated life in years.

For our problem we know that
`C=975000`,
`R=5000`, and
`U=5000`. Lets replace those values in our formula to find
`D_(a)`:

`D_(a)= (975000-5000)/(20)`

`D_(a)= (970000)/(20)`

`D_(a)=48500`

We can conclude that the annual depreciation of the optic fiber cable is $45,000