1 Brooke Company has prepared the PP E and depreciation schedule shown below Asset Cost (000s) Accumulated Depreciation (000s) Description Beg Bal Added Sold Ending Bal Beg Bal Added Sold Ending Bal Land 10,000 10,000 Building 1 30,000 30,000 6,857 857 7,714 Building 2 42,000 42,000 800 800 Computer A 5,000 5,000 0 3,750 208 3,958 0 Computer B 3,500 3,500 583 583 Press 1,500 1,500 300 150 450 Auto 1 15 15 0 15 15 0 Auto 2 22 22 2 2 Total 46,515 45,522 5,015 87,022 10,922 2,600 3,973 9,549 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 Required 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) List two audit procedures for auditing the additions to PP E 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 2 This question contains three items that are management assertions about property and equipment Following them are several substantive procedures for obtaining evidence about management's assertions Assertions The entity has legal right to property and equipment acquired during the year Recorded property and equipment represent assets that actually exist at the balance sheet date Net property and equipment are properly valued at the balance sheet date Substantive Procedures Trace opening balances in the summary schedules to the prior year audit documentation Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment Examine deeds and title insurance certificates Perform cutoff tests to verify that property and equipment additions are recorded in the proper period Determine whether property and equipment are adequately insured Physically examine all major property and equipment additions Required For each of the three assertions (1, 2, and 3), select the one best substantive audit procedure (a g) for obtaining competent evidence A procedure may be selected only once or not at all

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1. Brooke Company has prepared the PP&E and depreciation schedule shown below: Asset Cost (000s) Accumulated Depreciation (000s) Description Beg.Bal. Added Sold Ending Bal. Beg.

1. Brooke Company has prepared the PP&E and depreciation schedule shown below:

Asset Cost (000s)

Accumulated Depreciation (000s)

Description

Beg.Bal.

Added

Sold

Ending Bal.

Beg. Bal.

Added

Sold

Ending Bal.

Land

10,000

Building 1

30,000

6,857

857

7,714

Building 2

42,000

800

Computer A

5,000

3,750

208

3,958

Computer B

3,500

583

Press

1,500

300

150

450

Auto 1

Auto 2

Total

46,515

45,522

5,015

87,022

10,922

2,600

3,973

9,549

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.

Required:

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).
List two audit procedures for auditing the additions to PP&E.
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?

2. This question contains three items that are management assertions about property and equipment. Following them are several substantive procedures for obtaining evidence about management's assertions.

Assertions

The entity has legal right to property and equipment acquired during the year.
Recorded property and equipment represent assets that actually exist at the balance-sheet date.
Net property and equipment are properly valued at the balance-sheet date.

Substantive Procedures

Trace opening balances in the summary schedules to the prior-year audit documentation.
Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year.
Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment.
Examine deeds and title insurance certificates.
Perform cutoff tests to verify that property and equipment additions are recorded in the proper period.
Determine whether property and equipment are adequately insured.
Physically examine all major property and equipment additions.

Required:

For each of the three assertions (1, 2, and 3), select the one best substantive audit procedure (a-g) for obtaining competent evidence. A procedure may be selected only once or not at all.