Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gonzales, CPA, is the auditor for a manufacturing company with a balance sheet that includes the entry Property, plant, and equipment. Gonzales has been asked

Gonzales, CPA, is the auditor for a manufacturing company with a balance sheet that includes the entry Property, plant, and equipment. Gonzales has been asked by the companys management if audit adjustments or reclassifications are required for the following material items that have been included in or excluded from Property, plant, and equipment: 1. A tract of land was acquired during the year. The land is to be the future site of the clients new headquarters, which will be constructed next year. Commissions were paid to the real estate agent used to acquire the land, and expenditures were made to relocate the previous owners equipment. These commissions and expenditures were expensed and are excluded from Property, plant, and equipment. 2. Clearing costs were incurred to ready the land for construction. These costs were included in Property, plant, and 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, and equipment. 4. A group of machines was purchased under a royalty agreement that provides royalty payments based on units of production from the machines. The costs of the machines, freight costs, unloading charges, and royalty payments were capitalized and are included in Property, plant, and equipment. Required a. Describe the general characteristics of assets, such as land, buildings, improvements, machinery, equipment, fixtures, and so on, that should normally be classified as Property, plant, and equipment, and identify assertions in connection with the examination of Property, plant, and equipment. Do not discuss specific audit procedures. b. Indicate whether each of the items numbered 1 to 4 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Terminology

Authors: Michael P Griffin

1st Edition

1423229371, 9781423229377

More Books

Students also viewed these Accounting questions

Question

1. To gain knowledge about the way information is stored in memory.

Answered: 1 week ago