8.54 Audit the PP&E and Depreciation Schedule. Barts Company has prepared the PP&E and depreciation schedule shown in Exhibit 8.50.1.

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.

EXHIBIT 8.54.1

PP&E and Depreciation

Asset Cost (000s)

Accumulated Depreciation (000s)

Beginning Description Balance Added

Land 10,000

Sold

5,000

Ending Beginning Balance Balance Added

10,000 30,000 6,857 857 42,000 800

0 3,750 208 3,500 583 1,500 300 150

Sold

Ending Balance

Building 1 Building 2 Computer A Computer B Press 1,500 Auto1 15 Auto2 22

Total 46,515 45,522

7,714 800 3,958 0 583 450 15 0 2

3,973 9,549

30,000 5,000

42,000 3,500

15 0 15 22 2

5,015 87,022

10,922 2,600

LO 8-2, LO 8-6 Required: Verifythedepreciationcalculations.Arethereanyerrors?Puttheerrorsintheformof an adjusting journal entry, assuming that 90 percent of the depreciation on the build- ings 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 Gen- eral 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?