Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2011, 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 2013, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2013 depreciation of:
A)$3,500.
B)$4,400.
C)$5,400.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The depreciation for 2013 is calculated by considering the remaining book value of the original equipment and the new equipment. The original equipment has a cost of $14,000 with a useful life of 4 years, so annual depreciation is $3,500. By 2013, two years of depreciation have been recorded, leaving a book value of $7,000. The equipment sold for $600 had a book value of $2,500 ($5,000 cost - $2,500 accumulated depreciation), resulting in a loss of $1,900. The new equipment costing $6,000 is added. The total depreciation for 2013 is $3,500 (original equipment) + $1,900 (loss on sale) = $5,400.

Canliss Mining Uses the Replacement Method to Determine Depreciation on Its