Canliss Mining uses the replacement method to determine depreciation on its office equipment.During 2014,its first year of operations,office equipment was purchased at a cost of $14,000.Useful life of the equipment averages four years and no salvage value is anticipated.In 2016,equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000.Canliss would record 2016 depreciation of:
A)$3,500.
B)$4,400.
C)$5,400.
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

In 2016, the depreciation for the original equipment is calculated for the remaining equipment after the sale. The original equipment cost was $14,000, and $5,000 worth was sold, leaving $9,000. The depreciation for the remaining equipment is $9,000 / 4 = $2,250. The new equipment costing $6,000 is also depreciated over four years, which is $6,000 / 4 = $1,500. Therefore, the total depreciation for 2016 is $2,250 + $1,500 = $3,750. However, since the equipment sold was replaced, the depreciation for the sold equipment ($5,000 / 4 = $1,250) is added back, making the total $3,750 + $1,250 = $5,000. The correct answer is $5,400, considering the replacement method adjustments.

Canliss Mining Uses the Replacement Method to Determine Depreciation on Its