Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2007, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages 4 years and no salvage value is anticipated. In 2009, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2009 depreciation of:
A)$3,500.
B)$4,400.
C)$5,400.
D)None of these.Cost of replacement equipment of $6,000 less proceeds of $600 = $5,400.

Question

Quizplus · Accepted Answer

Under the replacement method, depreciation is calculated by subtracting the proceeds from the sale of the old equipment from the cost of the new replacement equipment. In this case, the cost of the new equipment is $6,000 and the proceeds from the sale of the old equipment is $600, so the depreciation expense for 2009 is $5,400 ($6,000 - $600).

Canliss Mining Uses the Replacement Method to Determine Depreciation on Its