REQUIREMENTS
A. Review the information in 1-4, determine if there are any necessary adjusting journal entries, record in the proposed journal entry working paper, and provide an explanation of your proposed entry.
B. Recompute depreciation and prepare depreciation table. Assume all acquisitions/additions occur mid-year. Support your answers/computations. If the provision does not appear reasonable, discuss follow-up procedures related to the provisions.
C. Put all auditor names on audit working paper. You are only required to turn in the audit working paper
You are reviewing property, plant and equipment working papers of Mandville Corporation, a company that publishes travel guides. The following is the lead schedule K-1: K-1 THE MANDVILLE CORPORATION Summary of Property. Plant, and Equipment and Accumulated Depreciation December 31, 20X2 Assets Accumulated Depreciation Account Number Balance 12/31X1 Balance 12/31X2 Balance 12/31X1 Balance 1231X2 Description Additions Retirements Method Rate Provision Retirements 151 Land 151000 651000 Land improv 10,000 145,000 SL 5% 7.000 20.500 500,000 Y 135,000 Y 4.500.000 Y 300,000 Y 1545 Buildings 495,000 4,995,000 SL 3% 13.500 Y 292.000 Y 235.000 Y 142,420 134420 255.000 Equipment 110.000 60,000 850,000 SL 10% 70.600 50,600 TOTALS 5.935,000 60.000 6,641000 540,500 220.020 709.920 766,000 K-1-1 50,600 K-1-1 K K-1-2 K Y Agreed to prior year work papers. Footed plant and equipment subsidiary ledger cards. No exceptions. Conclusion: As a result of our audit procedures for property, plant, and equipment and related depreciation, it is our opinion that the 12/31/X2 balances are fairly stated. VMH CMW 1/17/X3 1/25/X3 Working papers K1-1 (retirements of fixed assets) and K1-2 (Depreciation report) are not provided and are not necessary for solving this case. The following detail changes in the account: 1. Land: The addition represents the purchase of land adjacent to the company's existing plant and is financed as follows: Contract sales price2,000 shares of Mandville Corporation Common Stock Liabilities assumed by Mandville Accrued county taxes at settlement date Unpaid sewer installation assessment (4.600) (6,400) On June 17, the date on which the buyer and seller discussed the transaction, shares of Mandville Corporation stock were selling for $77.50. On June 30, the settlement date (day of the sale), Mandville stock was selling for $70.00 per share. The journal entry for the purchase was recorded as: Land $151,000 Common Stock $ 20,000 Paid-in capital in excess of par 120,000 Accrued taxes payable 4,600 Accrued sewer assessment payable 6,400 2. Land improvements: This account was increased by three journal entries (each recorded with a debit to land improvements and a credit to cash) during the year. Each of these improvements relates to the new land that was purchased in point (1) above. $2,500 3,500 Sidewalk to building Repaving of road to building Chain link fence (replaces rusted chain link fence surrounding property) 4,000 3. Building: The building was constructed by an independent contractor, the contract was for $473,000. Progress payments were made during construction through use of proceeds of a bank loan, for which the building serves as collateral. The interest during construction was capitalized ($22,000), while the interest subsequent to construction but prior to year-end ($20,000) was expensed. 2 Auditing: Fixed Asset Section 4. Equipment: The change in the equipment was a trade of old book update printing equipment for two new computer servers and associated software that will maintain electronic updates. Until recently, updates of outdated portions of guidebooks were printed and "shrinkwrapped" with the guidebook. Now the updates will be available on Mandville's website. The old equipment had a cost of $60,000 and accumulated depreciation of $50,600 and was worth approximately its book value of $9,400, although the salesperson suggested that he was providing the company a $19,400 trade-in value. Accordingly, the following entry was made to record the exchange: $110,000 50,600 Equipment-computer servers Accumulated Depr. (old equipment) Cash Equipment-printing equipment Gain on exchange of assets $90,600 60,000 10,000 5. Depreciation provisions: Mandville uses software to calculate depreciation to the exact day. You are reviewing property, plant and equipment working papers of Mandville Corporation, a company that publishes travel guides. The following is the lead schedule K-1: K-1 THE MANDVILLE CORPORATION Summary of Property. Plant, and Equipment and Accumulated Depreciation December 31, 20X2 Assets Accumulated Depreciation Account Number Balance 12/31X1 Balance 12/31X2 Balance 12/31X1 Balance 1231X2 Description Additions Retirements Method Rate Provision Retirements 151 Land 151000 651000 Land improv 10,000 145,000 SL 5% 7.000 20.500 500,000 Y 135,000 Y 4.500.000 Y 300,000 Y 1545 Buildings 495,000 4,995,000 SL 3% 13.500 Y 292.000 Y 235.000 Y 142,420 134420 255.000 Equipment 110.000 60,000 850,000 SL 10% 70.600 50,600 TOTALS 5.935,000 60.000 6,641000 540,500 220.020 709.920 766,000 K-1-1 50,600 K-1-1 K K-1-2 K Y Agreed to prior year work papers. Footed plant and equipment subsidiary ledger cards. No exceptions. Conclusion: As a result of our audit procedures for property, plant, and equipment and related depreciation, it is our opinion that the 12/31/X2 balances are fairly stated. VMH CMW 1/17/X3 1/25/X3 Working papers K1-1 (retirements of fixed assets) and K1-2 (Depreciation report) are not provided and are not necessary for solving this case. The following detail changes in the account: 1. Land: The addition represents the purchase of land adjacent to the company's existing plant and is financed as follows: Contract sales price2,000 shares of Mandville Corporation Common Stock Liabilities assumed by Mandville Accrued county taxes at settlement date Unpaid sewer installation assessment (4.600) (6,400) On June 17, the date on which the buyer and seller discussed the transaction, shares of Mandville Corporation stock were selling for $77.50. On June 30, the settlement date (day of the sale), Mandville stock was selling for $70.00 per share. The journal entry for the purchase was recorded as: Land $151,000 Common Stock $ 20,000 Paid-in capital in excess of par 120,000 Accrued taxes payable 4,600 Accrued sewer assessment payable 6,400 2. Land improvements: This account was increased by three journal entries (each recorded with a debit to land improvements and a credit to cash) during the year. Each of these improvements relates to the new land that was purchased in point (1) above. $2,500 3,500 Sidewalk to building Repaving of road to building Chain link fence (replaces rusted chain link fence surrounding property) 4,000 3. Building: The building was constructed by an independent contractor, the contract was for $473,000. Progress payments were made during construction through use of proceeds of a bank loan, for which the building serves as collateral. The interest during construction was capitalized ($22,000), while the interest subsequent to construction but prior to year-end ($20,000) was expensed. 2 Auditing: Fixed Asset Section 4. Equipment: The change in the equipment was a trade of old book update printing equipment for two new computer servers and associated software that will maintain electronic updates. Until recently, updates of outdated portions of guidebooks were printed and "shrinkwrapped" with the guidebook. Now the updates will be available on Mandville's website. The old equipment had a cost of $60,000 and accumulated depreciation of $50,600 and was worth approximately its book value of $9,400, although the salesperson suggested that he was providing the company a $19,400 trade-in value. Accordingly, the following entry was made to record the exchange: $110,000 50,600 Equipment-computer servers Accumulated Depr. (old equipment) Cash Equipment-printing equipment Gain on exchange of assets $90,600 60,000 10,000 5. Depreciation provisions: Mandville uses software to calculate depreciation to the exact day
