Rivers, CPA, is the auditor for a manufacturing company with a balance sheet that includes the caption "Property, Plant and Equipment." Rivers has been asked by the company's management if audit adjustments or reclassifications are required for the following material items that have been included or excluded from "Property, Plant \& Equipment":

1. A tract of land was acquired during the year. The land is the future site of the client's new headquarters which will be constructed in the following year. Commissions were paid to the real estate agent used to acquire the land, and expenditures were made to relocate the previous owner's equipment. These commissions and expenditures were expensed and are excluded from "Property, Plant \& Equipment."

2. Clearing costs were incurred to make the land ready for construction. These costs were included in "Property, Plant \& Equipment."

3. During the land clearing process, timber and gravel were recovered and sold. The proceeds from the sale were recorded as other income and are excluded from "Property, Plant \& Equipment."

4. A group of machines was purchased under a royalty agreement which provides royalty payments based on units of production from the machines. The cost of the machines, freight costs, unloading charges, and royalty payments were capitalized and are included in "Property, Plant \& Equipment."

Required:

a. Identify the audit objectives for "Property. Plant, \& Equipment" and indicate the principal audit procedures pertaining to each.

b. Indicate whether each of the items numbered 1 to 4 above requires one or more audit adjustments or reclassifications, and explain why such adjustments or reclassifications are required or not required. Organize your answer as follows:

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Item Number Is Audit Adjustment or Reclassification Required? Yes or No Reasons Why Audit Adjustment or Reclas- sification Is Required or Not Required