Question

Bart’s Company has prepared the fixed asset and depreciation schedule shown in Exhibit DC13-2. The following information is available:
• 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 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.
• The Equipment A 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.
• The Computer system was placed in operation as soon as the Equipment A 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.
• Truck 1 was sold during the year for $1,000.
• Truck 2 was purchased on July 1. The company expects to use it five years and then sell it for $2000.
• All amortization is calculated on the straight-line method using months of service.

Required:
a. Audit the depreciation calculations. Are there any errors? Put the errors in the form of an adjusting journal entry, assuming 90% of the depreciation on the buildings and the press has been charged to cost of goods sold and 10% is still capitalized in the inventory, and the other depreciation expense is classified as general and administrative expense.
b. List two audit procedures for auditing the fixed asset additions.
c. What will an auditor 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 cashflows?


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  • CreatedJanuary 09, 2015
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