Question
Whiteman Service Center is a wholly owned subsidiary of Whiteman Federated Stores. The companys function is to deliver furniture and appliances sold by the parent
Whiteman Service Center is a wholly owned subsidiary of Whiteman Federated Stores. The companys function is to deliver furniture and appliances sold by the parent and to service electronics and appliances, also sold by the parent company. Whiteman Federated Stores, the parent, operates twelve retail outlets in a large tricounty metropolitan area. The service center uses three delivery trucks and fifteen service vehicles for delivering goods and for making service calls related to large appliances and electronic equipment. Customers typically bring small appliances and electronics to the service center for repair. At January 1, 20X2, Whiteman Service Center reported audited balances of $720,000 and $350,000 for Trucks and Accumulated Depreciation--Trucks, respectively. The vehicles consisted of five delivery trucks costing $72,000 each and fifteen service trucks costing $24,000 each. Accumulated depreciation was $200,000 for delivery trucks and $150,000 for service trucks. The company depreciates all trucks on a straight-line basis, using a six-year life and zero salvage value. One-half years depreciation is taken in the year of acquisition and in the year of disposal. During 20X2, the attached transactions and journal entries were completed by the company
2/02/X2 | Sold one delivery truck for $4,000. The truck was fully depreciated at 12/31/X1. | ||
Cash | 4,000 | ||
Truck | 4,000 | ||
3/01/X2 | Bought one delivery truck for $84,000. | ||
Truck | 84,000 | ||
Cash | 84,000 | ||
3/15/X2 | Sold one service truck for $7,000. This truck was purchased 8/15/99 for $24,000 and the accumulated depreciation, according to Silver's subsidiary ledger, at the date of sale was $10,000. | ||
Cash | 7,000 | ||
Truck | 7,000 | ||
7/25/X2 | Bought one service truck for $26,000. | ||
Truck | 26,000 | ||
Cash | 26,000 | ||
12/31/X2 | Recorded depreciation for 20X2. Four delivery trucks at $12,000 each ($48,000 total) and fifteen service trucks at $4,000 each ($60,000 total). | ||
Depreciation Expense--Trucks | 108,000 | ||
Accumulated Depreciation--Trucks | 108,000 |
REQUIRED: (1) Prepare an audit working paper, analyzing the following accounts.
Trucks Gain (Loss) on Disposal of Trucks
Depreciation Expense--Trucks
Accumulated Depreciation--Trucks
Start with the audited balances at the beginning of the year. Determine the additions, deletions, and ending balance based on the clients entries.
(2) Show the transactions that should have been recorded during 20X2 to arrive at audited balances at the end of the year. Compare these amounts with the December 31, 20X2 client balances and record necessary audit adjustments, in proper form.
(3) What are the audit objectives for purposes of this exercise?
(4) What audit procedures should be applied to meet the audit objectives? Be specific.
(5) Add appropriate audit symbols (tic marks) at the bottom of your working paper indicating the procedures that you would perform as the auditor on this working paper based upon the procedures you developed in (4) above.
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