Hale, CPA, has been engaged to do the audit of Burr Corporation for the year ending December 31, 20X6. The attached additional information is found during the audit. The attached schedule for property, plant, and equipment and the related accumulated depreciation accounts have been prepared for Hale by the client. Hale has verified the opening balances for the year with the prior year's audit working papers. The attached additional information is found during the audit. REQUIRED: (1) (2) In addition to inquiry of the client, explain what procedures the auditor would have used to discover each of the items included as part of the additional information during the audit. Be specific with your answers. Using the attached forms, prepare the adjusting journal entries Hale would recommend, if any, and provide appropriate supporting computations, to adjust the property, plant, and equipment accounts for the transactions attached. Ignore income tax considerations. Also, provide a brief explanation for each entry made. BURR CORPORATION ADDITIONAL INFORMATION RELATED TO PROPERTY, PLANT, AND EQUIPMENT FOR YEAR ENDING DECEMBER 31, 20X6 (a) All equipment is depreciated on the straight line basis, with no salvage value, based on the following useful lives: land improvements, 20 years, buildings, 25 years, machinery and equipment, 10 years. The corporation's policy is to take a half year's depreciation in the year of acquisition and a half year's depreciation in the year of disposal. (0) On April 1, the corporation entered into a ten year lease contract for a machine with annual rentals of $50,000, payable on each April 1, beginning with this year. The lease can be cancelled by either party with 60 days written notice, and there is no option to renew the lease or buy the equipment at the end of the lease. The estimated useful life of the machine is ten years with no salvage value. The corporation recorded the machine in the machinery and equipment account at $404,000, the present value at the date of the lease, and $20,200 applicable to the machine has been included in depreciation expense for the year. (c) The corporation completed the construction of a wing on the plant building on June 30. The useful life of the building was not extended by this addition. The lowest construction bid received was $175,000, the amount recorded in the buildings account. Company personnel were used to construct the addition at a cost of $160,000 (materials, $75,000; labor, $55,000; and overhead, $30,000). (d) On August 18, $50,000 was paid for paving and fencing a portion of land owned by the corporation and used as a parking lot for employees. The expenditure was charged to the land account. (e) The amount shown in the machinery and equipment asset retirement column represents cash received on September 10 upon disposal of a machine acquired in July 20X2 for $480,000. The bookkeeper recorded depreciation expense of $35,000 on this machine in 20X6. (1) Mason City donated land and building appraised at $100,000 and $400,000, respectively, to the Burr Corporation for a plant. On September 30, the corporation began operating the plant. Because no costs were involved, the bookkeeper made no entry for this transaction. BURR CORPORATION ANALYSIS OF PROPERTY, PLANT, AND EQUIPMENT AND RELATED ACCUMULATED DEPRECIATION ACCOUNTS FOR YEAR ENDING DECEMBER 31, 20X6 Final Amount 12/31/35 Amount Per Books 12/31/X6 Account Additions Retirements ASSETS Land S $ 50,000 175,000 Buildings Machinery & Equipment Totals 225,000 $ 1.200,000 3,850,000 5,275,000 $ 275.000 1,375,000 3,994.000 5.644,000 404,000 $ 260,000 260,000 $ S 629.000 S S 51.500 $ ACCUMULATED DEPRECIATION Buildings Machinery & Equipment Totals 600,000 $ 1.732,500 2.332.500 392,200 443,700 651,500 2.124.700 2.776,200 S S BURR CORPORATION GENERAL JOURNAL FOR FISCAL YEAR ENDING DECEMBER 31, 20X6 Explanation Debit Date Credit