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?
Remember that straight line depreciation can be calculated using the formula: [tex]D_{a}= \frac{C-R}{U} [/tex] where [tex]D_{a}[/tex] is the annual depreciation [tex]C[/tex] is cost [tex]R[/tex] is the salvage value [tex]U[/tex] is the estimated life in years.
For our problem we know that [tex]C=975000[/tex], [tex]R=5000[/tex], and [tex]U=5000[/tex]. Lets replace those values in our formula to find [tex]D_{a}[/tex]: [tex]D_{a}= \frac{975000-5000}{20} [/tex] [tex]D_{a}= \frac{970000}{20} [/tex] [tex]D_{a}=48500[/tex] We can conclude that the annual depreciation of the optic fiber cable is $45,000
