To calculate the annual depreciation expense for the first two years, we will use the straight-line depreciation method.

Formula:

$\text{Depreciation Expense} = \frac{\text{Cost of Equipment} - \text{Residual Value}}{\text{Useful Life}}$

Step 1: Identify the values for the initial two-year depreciation calculation.

• Cost of Equipment = $90,100
• Residual Value = $8,900
• Useful Life = 7 years

Step 2: Plug in the values into the depreciation formula.

$\text{Depreciation Expense} = \frac{90,100 - 8,900}{7} = \frac{81,200}{7}$

Step 3: Calculate.

$\text{Depreciation Expense} = 11,600 \, \text{per year}$

Thus, the annual depreciation expense for the first two years is $11,600 per year.

Would you like me to go over the next parts of the problem or explain more details?

---

Here are 5 questions that expand the information:

1. How is straight-line depreciation different from other methods like double declining balance?
2. What happens if the residual value is higher than the expected in future?
3. How does the fiscal year impact depreciation calculations?
4. How would you calculate depreciation if the equipment was sold halfway through the year?
5. What would happen if the equipment was upgraded earlier than expected?

Tip: Always check for changes in useful life or residual value when upgrades occur to adjust depreciation correctly.