Your audit revealed the following information regarding errors discovered during the audit: 1. On February 1, the company entered in to an eightyear lease contract for a diecasting machine, wii annual rental payments of $2,500, payable in advance every February 1. The lease is cancelable by either party and there is no option to renew the lease or buy the equipment at the end of the lease. The estimated service life of the machine is 8 years wii no residual value. The company recorded this transaction as a capital lease recording the lease obligation and the asset at $60,000, the present value at the date of the lease. It also recorded the applicable depreciation expense for the year on the machine. Prepaid Rent 625 (2,500 .." 12 months} Accumulated Depreciation Machinery 8:. Equipment 500 Contract Payable 52,500 {60,000 2,500] Rent Expense 6,625 (2,500 x 11f12 months] Machinery and Equipment 60,000 [Given] Depreciation Expense 500 (60,000:f 10 years I 12 months} 2. The company had a new roof installed on one of its buildings [which it originally purchased on June 30, 2001]. The new roof did not extend the life of the building. Completion of the work occurred on June 30, 2016 at a cost of $20,000. The old roof cost $15,000 with a book value of $2,500 at ie time the new roof was completed. The company made all of the correct journal entries to record the disposition of the old asset and capitalization of the new asset but it calculated depreciation for the new roof with a useful life of 25 years. Note: Depreciation expense for the rest of the building was properly recorded. 3. During May 2016, Avon Corporation was assessed $6,000 by the city for sewer repairs. Following the sewer repairs, the company decided to repave the parking lot and complete a landscaping project [the nature of which constitutes an indenite life}. On August 31, 2016, the company paid $3,600 {$3,000 for paving and $300 for landscaping}. The chief accountant charged all expenditures to the Land account. 4. Avon Corporation sold a machine on October 1, 2016 for $26,000 cash. The company purchased the machine on April 1, 2012 for $50,000. The chief accountant recorded depreciation expense of $5,000 on this machine in 2016. All other depreciation expense journal entries were recorded correctly in previous years. 5. Marine City donated land and a building appraised at $150,000 and $300,000, respectively, to Avon Corporation on October 1. Since no costs were involved, the chief accountant made no entry for the above transaction. Land 150,000 Budings 300,000 Depreciation Buildings 1,000 (300,000 I 25 years I 12 months] Paidin Capital from Donated Assets 150,000 Accumulated Depreciation Buildings 1,000
