Question

A bank decides to purchase a new computer server for $9,900. The expected useful life of the server is 5years, after which it can be sold for $800. The bank purchases the server on July 1, 2022. The bank uses straight-line depreciation to determine the value of all equipment and intends to use proportional depreciation for the year 2022. Calculate the annual depreciation expense for the server.

Answer 1

The annual depreciation expense of the server is calculated to be $1,820 using the straight-line depreciation method, subtracting the salvage value from the cost, and dividing by the useful life of the asset.

Step-by-step explanation:

The bank needs to calculate the annual depreciation expense for the server. Since the cost of the server is $9,900 and it can be sold for $800 at the end of its useful life, the total depreciation over the 5 years is $9,900 - $800 = $9,100. The straight-line depreciation method divides this total depreciation by the number of years of useful life. Calculating the annual depreciation expense involves the following steps:

1. 
   
2. Subtract the salvage value ($800) from the cost of the server ($9,900) to determine total depreciation. Total depreciation = $9,900 - $800 = $9,100.
3. 
   
4. Divide the total depreciation by the useful life of the asset (5 years). Annual depreciation expense = $9,100 ÷ 5 = $1,820.

This results in an annual depreciation expense of $1,820 for the server.