On January 1, 2014, Muoy Machining Co. purchased a compressor and related installation equipment for $72,500. The equipment had a three-year estimated life with a $12,500 salvage value. Straight-line depreciation was used
To calculate the annual depreciation expense using the straight-line method, you need to have the initial cost of the equipment, the salvage value, and the estimated useful life.
Step 1: Subtract the salvage value from the initial cost of the equipment.
$72,500 - $12,500 = $60,000
Step 2: Divide the difference by the estimated useful life of the equipment.
$60,000 / 3 years = $20,000
Therefore, the annual depreciation expense for Muoy Machining Co.'s compressor and related installation equipment is $20,000.