Audit the PP& E and Depreciation Schedule. Bart’s Company has prepared the PP& E and depreciation schedule shown in Exhibit 8.48.1. The following information is available (assume the beginning balance has been audited):
• The land was purchased eight years ago when building 1 was erected. The location was then remote but now is bordered by a major freeway. The appraised value of the land is $ 35 million.
• Building 1 has an estimated useful life of 35 years and no residual value.
• Building 2 was built by a local contractor this year. It also has an estimated useful life of 35 years and no residual value. The company occupied it on May 1 this year.
• Computer A system was purchased January 1 six years ago when the estimated useful life was eight years with no residual value. It was sold on May 1 for $ 500,000.
• Computer B system was placed in operation as soon as Computer A system was sold. It is estimated to be in use for six years with no residual value at the end.
• The company estimated the useful life of the press at 20 years with no residual value.
• Auto 1 was sold during the year for $ 1,000.
• Auto 2 was purchased on July 1. The company expects to use it five years and then sell it for $ 2,000.
• All depreciation is calculated on the straight- line method using months of service.

a. Verify the depreciation calculations. Are there any errors? Put the errors in the form of an adjusting journal entry, assuming that 90 percent of the depreciation on the buildings and the press has been charged to Cost of Goods Sold and 10 percent is still capitalized in the inventory, and the other depreciation expense is classified as General and Administrative Expense (i. e., building and press depreciation is considered a product cost; inventory on hand includes 10 percent of the depreciation expense for buildings and the press: $ 180,700; Cost of Goods Sold contains the other 90 percent: $ 1,626,300).
b. List two audit procedures for auditing the additions to PP& E.
c. What will auditors expect to find in the Gain and Loss on Sale of Assets account? What amount of cash flow from investing activities will be in the statement of cash flows?

  • CreatedOctober 27, 2014
  • Files Included
Post your question