Capitalization and Depreciation
Response to the following problem:
At the beginning of the year, Patrick Company acquired a computer to be used in its operations. The computer was delivered by the supplier, installed by Patrick, and placed into operation. The estimated useful life of the computer is five years, and its estimated residual (salvage) value is significant
During the year, Patrick received cash in exchange for an automobile that was purchased in a prior year.
Required
1. a. What costs should Patrick capitalize for the computer?
b. Explain the objective of depreciation accounting. (Do not discuss specific methods of depreciation.)
2. Explain the rationale for using accelerated depreciation methods.
3. How should Patrick account for and report the disposal of the automobile?