On 4/4/20, Baker Roofing repaired several holes in the roof of the warehouse caused by a hail storm on 3/21/20, on the account. The warehouse has an 11-year remaining life.	Accounting Transaction 3/27/20 DB: PPE-Warehouse ↑ $26,936 cr: Accounts Payable ↑ $26,936
Audit Steps Performed in Oct. 2020 Observed water damage on ceiling and walls of the warehouse Agreed to roofer’s initial estimate (dated 3/27/20) and final invoice (dated 4/6/20) Traced to check #515135 in CRJ for $26,396 payable to Baker Roofing (posted 5/22/20)
Audit Staff Conclusion The PPE transaction is fairly stated in accordance with GAAP

PPE Transaction #2

Economic Event On 5/1/20, purchased a 17 story office building on 0.2 acres of land for the new divisional headquarters for $77m, cash. The new suburban Ohio headquarters is 22 miles from downtown.	Accounting Transaction 5/1/20 DB: PPE-Land ↑ $75m DB: PPE-Building ↑ $2m cr: Cash ↓ $77m
Audit Steps Performed in Oct. 2020 Observed the land and building to determine that it satisfies the existing condition Agreed client ownership records to the title, county deed, and purchase contract Traced to check #516325 in CDJ for $77m (posted 5/1/20)
Audit Staff Conclusion The PPE transaction is fairly stated in accordance with GAAP

PPE Transaction #3

Economic Event On 6/21/20, sold a barge (a big ship) for $7k. The barge was purchased in 2005 for $335k, had a 15-year useful life and a 30% salvage value. The client uses straight-line depreciation.	Accounting Transaction 6/21/20 DB: Cash ↑ $7k DB: Acc. Deprec.-Barge ↓ $268k db: Loss on Sale ↑ $59k cr: PPE-Barge ↓ $335k
Audit Steps Performed in Oct. 2020 Recomputed and traced cash to CRJ noting a $7k entry on 6/21/20 Traced book value to last year’s audit work papers Observed the barge The agreed purchase price to the sales contract and Ohio title transfer documents of watercraft
Audit Staff Conclusion The PPE transaction is fairly stated in accordance with GAAP

A. Assume you’re reviewing a staff accountant’s work on three PPE transactions. The client has an Oct. 30, 2020, fiscal year-end. Briefly discuss any audit concerns and provide guidance to the staff accountant.

A.1. PPE Transaction #1

A.2. PPE Transaction #2

A.3. PPE Transaction #3

Answer rating: 100% (QA)

A1 PPE Transaction 1 The staff accountant did not adequately test the PPE transaction for accuracy ... View the full answer