The unadjusted pre-closing 12/31/15 account balances for the Mahoney company are listed below:

 

During your audit, you discover the following five items that have yet to be recorded;

1. No depreciation on the building has been recorded in 2015. Depreciation on the building based on Double-Declining Balance. It was purchased on 1/1/14 and has an estimated useful life of 40 years. The estimated salvage value is $670,000.

2. Mahoney exchanged a machine for a similar machine on 12/31/15. The original machine cost $3,705,000 and had a book value of $2,470,000. The new machine had a fair value of  $1,660,000; Mahoney also received $306,000 in cash. The exchange did not have commercial substance.

3. Mahoney also exchanged its only other machine for a different machine on 12/31/15. The original machine cost $2,719,000 and had a book value of $1,958,000. The fair value was $2,125,000. Mahoney paid cash of $487,000 as well. The exchange had commercial substance.

4. Mahoney uses the Balance Sheet approach to adjust Accounts Receivable to Net Realizable Value. At 12/31/15, uncollectible receivables are estimated to be 5% of Accounts Receivable.

5. Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.

$11,015,000 8,991,000 430,000 564,000 Net Sales Net Purchases Selling Expenses Cash 6,424,000 1,996,000 1,445,000 4,182,000 54,000 4,400,000 220,000 5,000,000 1,240,000 913,000 950,000 Machines Accumulated Depreciation, Machines Accounts Payable Retained Earnings Allowance for Doubtful Accounts Building Accumulated Depreciation, Building Common Stock Accounts Receivable Depreciation Expense, Machines Inventory @1/1/15 (periodic method used)