Brony's Bikes
Module XI: Plant Asset Additions and Disposals
In Module IV, you applied MUS (LINK) sampling procedures in evaluating the correctness of a
subset of debits to the "Factory Equipment" account. You will recall that the debits to account
1530 totaled $89,860,000 for 20X9. You will also recall that Derick decided to stratify the
population of debits such that $77,260,000 of major additions, representing replacements of
worn-out equipment, was to be audited in detail. In Module XI, you will analyze this subset of
additions, as well as disposals. You will also complete the "Plant Assets" lead schedule.
Requirements
1. Using the Excel file labeled "20X9 Plant." (LINK) Locate the following documentation in
this file:
WP 11?Plant assets and accumulated depreciation?lead schedule (note that AJE 1 from
Module IV (20X9 MUS.xlxs (LINK)) has already been posted); and
WP 11.4 - Factory equipment - additions and disposals.
Scroll to WP 11.4, "Factory Equipment - Additions and Disposals." What is the nature of the
"underlying documentation" referred to in the explanation of audit legends E and W?
2. In recording the 20X9 disposals, Janel James, Brony's Bikes' plant assets accountant,
miscalculated the accumulated depreciation on the assets sold and thereby overstated the gain on
disposal by $3,090,000. Draft Audit Adjustment 10 at the bottom of WP 11.4 to correct for this
misstatement.
In addition, James did not change the standard journal entry for monthly depreciation to reflect
additions and disposals during the year. As a result depreciation expense for the year is
understated by $800,000. Brony's Bikes depreciates factory equipment on a straight-line basis
over a ten-year estimated useful life with zero salvage value. One-half year's depreciation is
taken on all additions and disposals. Draft Audit Adjustment 11 at the bottom of WP 11.4 to
reflect the depreciation understatement.
In recording the under-depreciation, debit account 5300 "Cost of Goods Sold - Pike's Peak
Mountain Bike," inasmuch as all overhead accounts have been closed. Any further adjustments,
therefore, must be reflected in the cost of sales accounts.
Although in Module IV we allocated the adjustment to the five product cost of sales accounts,
the present adjustment is less significant in amount, and therefore we will reflect the entire
amount in account 5300. (Note: Don't forget to enter Audit Adjustments 1, 10, and 11 in the
body of the document to arrive at correct adjusted balances.)
3. Scroll to WP 11"Plant Assets and Accumulated Depreciation - Lead Schedule." Post Audit
Adjustments 10 and 11 to the lead schedule.
Recalculation of gain on disposal: Cost of equipment acquired in various years $49,860,000 Accumulated depreciation (including 1/2 year in 2007) $41,710,000 Book value $8,090,000 Selling price $9,000,000 Gain $910,000 Per general ledger $4,000,000 Error ($3,090,000) Audit Adjustment no. 10 9495 Gain/Loss on Disposal of Plant Asse $3,090,000 1535 Accumulated Depreciation-Factory Equipment $3,090,000 To correct for error in calculating accumulated depreciation on disposals of factory equipment. audit Adjustment no. 11 5300 cost of Goods soldPike's Peak mun $300,000 1535 Accumulated Depreciation-Factory Equipment $800,000 To correct for underdepreciation on the excess of additions over disposals. Explanation of audit legends: > Traced to 2018 audit workpapers and 1I1I19 ledger balance W Examined work orders and traced: Materials to materials requisitions and invoices Direct labor to time cards Direct and indirect overhead to company analyses Examined underlying documentation Recalculated Traced to 12/31/19 general ledger Traced to plant assets ledger Examined remittance advice and bank statement Traced to 12/311'18 plant assets ledger and calculated 1/2 year's depreciation for 2019 u u h a a H E i Drony's Bikes Journal Entry: cash accumulated Depreciation-FE Factory Equipment Gain on Disposal Correct Entry: Cash Accumulated Depreciation-FE Factory Equipment Gain on Disposal $9,000,000 $44,860,000 $49,860,000 $4,000,000 BIONY' S Bikes Prepared D DY . Plant Assets and Accumulated Depreciation - Lead Schedule* Date :` December 31 , 20*9 Reviewed by . Date :` ASSETS 12 / 31 / 20 * 8 20x9 20x9 12 / 31 / 20 *9 Audit Audited Workpaper Balance Additions Disposals Balance Adjustments Balance Reference Land $ 4 , 000 , 000 OS 50 $ 4 , 000 , 000 $4 , 000 , 000 1 1 . 1 Factory Building $ 50 , 000 , 000 50 SO $50 , 000 , 000 $50, 000 , 000 11 . 2 & C Warehouses and Sales Offices $ 200 , 000 , 000 $200 , 000 , 000 $200 , 000 , 000 11 . 3 A Q Factory Equipment* $320 , 000 , 000 $89 , 860 , 000 ( $49 , 860 , 000 ) $360 , 000 , 000 " ( 1 ) $360 , 000 , 000 11 . 4 Office Building $20 , 000 , 000 SO SO $20 , 000 , 000 $20 , 000 , 000 11 . 5 office Fixtures and Equipment $9, 000 , 000 $2 , 000 , 000 ( $ 1 , 000 , 000 ) $10 , 000 , 000 $10 ,000 , 000 11 . 6 Autos and Trucks $900 , 000 $100 , 000 SO $1 , 000 , 000 $1 , 000 , 000 11 . 7 $603 , 900 , 000 $91 , 960, 000 ( $50 , 860 , 000 ) $645 , 000 , 000 SO $645 , 000 , 000 ACCUMULATED DEPRECIATION 12 / 3 1 / 20 * 8 20x9 20x9 12 / 31 / 20 x9 Audit Audited Workpaper Balance Additions Disposals Balance Adjustments Balance Reference Factory Building $12 , 140 , 000 $2 , 000 , 000 $14 , 140, 000 $14 , 140 , 000 1 1 . 2 A Warehouses and Sales Offices $95 , 000 , 000 $10 , 000 , 000 $105 , 000 , 000 $105 , 000 , 000\\ 1 1 . 3 Factory Equipment $147 , 460 , 000 $42 , 060 , 000 ( $ 4 4 , 860 , 000 ) $1 4 4 , 660 , 000 \\ ( 10 1 ( 11 ) $1 4 4 , 660 , 000| 11 . 4 office Building $7 , 200 , 000 $800 , 000 $8, 000 , 000 $8, 000 , 000 11 . 5 office Fixtures and Equipment* $5 , 075 , 000 $1 , 875 , 000 ( $800 , 000 ) $ 6 , 150 , 000 $ 6 , 150 , 000 11 . 6 Autos and Trucks $300 , 000 $ 320 , 000 $620 , 000 $620 , 000 11 . 7 $ 267 , 175 , 000 $57 , 055 , 000 ( $ 45 , 660 , 000 )| $278 , 570 , 000 SO $278 , 570 , 000TP 1 1 . 4 BronY'S Bikes Prepared by : Factory Equipment - Additions and Disposals Date :` December 31 , 20x9 Reviewed by : Date : ACCUMULATED GAIN / ( LOSS ) ASSET DEPRECIATION ON DISPOSAL 12 / 31 / *8 Audited Balance* $320 , 000 , 000 $ 147 , 460 , 000 oxg Additions :` Assembly Line # 1 refurbishing $15 , 600 , 000 Assembly Line # 2 refurbishing $22 , 340 , 000 W Ransport computerized paint system $ 16 , 800 , 000 E Welding equipment For lines 1 and 2 $5 , 760 , 000 E Computerized quality control system $1 1 , 110 , 000 E Stamping and Forming equipment For one - piece Frame $5 , 650 , 000 {` Additions Sampled ( See WP 1 1 . 3 ) $12 , 600 , 000 Beginning Balance Plus Additions $409 , 860 , 000 20x9 Disposals :` Assembly Lines 1 and 2 equipment ( $ 28 , 360 , 000 ) ( $26 , 345 , 000 ) Paint system ( $ 12 , 630 , 000 ) ( $ 12 , 360 , 000 ) welding equipment* ( $ 3 , 990 , 000 ) ( $ 2 , 955 , 000 ) Presses and Forming equipment ( $ 4 , 880 , 000 ) ( $3 , 200 , 000 ) $ 4 , 000 , 000 20x9 Depreciation Provision $42 , 060, 000 # - - - - 12 / 31 / *9 Ledger Balance* $360 , 000 , 000 * $1 4 4 , 660 , 000 * $ 4 , 000 , 000 judit Adjustments : AJE 1 AJE 10 AJE 1 1 12/ 31/ x9 Audited Balance $360 , 000 , 000 $14 4 , 660 , 000 $ 4 , 000 , 000 WP 1 1 WP 1 1
