Your firm is engaged to perform the audit of the financial statements of Southside Corporation for the year ended December 31, 2016. Southside began business in 2012. As a first year staff, you have been the tasked with performing the procedures in connection with the property section of the audit. You received a PBC from the client containing an analysis of the Property, Plant, and Equipment and related accumulated depreciation accounts, including additions and retirements (see PBC schedule in the workbook you are provided). You have already completed the first task in the audit program by tracing the beginning balances on the PBC to your prior year's audit working papers.

All plant assets are depreciated on the straight-line basis (no residual value taken into consideration) based on the following estimated service lives: building, 25 years; and all other items, 10 years. The company policy states that depreciation begins in the month the asset is placed in service and no depreciation is taken in month of disposal.

Your audit revealed the following information:

On October 1, the company entered into a 10-year lease contract for a die casting machine, with annual rentals of $7,000 payable in advance on September 1 of each year. The property was placed in service on October 1. The lease is cancelable by either party (60 days' written notice is required), 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 10 years with no residual value. The company recorded the die casting machine in the Machinery and Equipment account at $56,560, the present value at the date of the lease, and $1,414 applicable to the machine has been included in depreciation expense for the year and $500 was charged to interest expense.

The company completed the construction of a new building in November and placed the asset in service on December 1. Cost for the building were included in the CIP account.

On August 18, $5,000 was paid for paving and fencing a portion of land owned by the company and used as a parking lot for employees. The expenditure was charged to the Land account.

The amount shown in the machinery and equipment asset retirement column represents cash received on September 5 upon disposal of a machine purchased March 1, 2012 for $57,000. The chief accountant recorded depreciation expense of $5,700 on this machine in 2016.

The $17,500 capitalized to the building account was for roof repairs after a recent hurricane. It did not approve the asset or extend its useful life.

Prepare the adjusting journal entries that you would propose at December 31, 2016, to adjust the accounts for the above transactions. Computations should be rounded off to the nearest dollar. Use a separate adjusting journal entry for each of the preceding five paragraphs.

Complete an ADJUSTED fixed asset rollforward schedule.

Perform analytical testing on the depreciation expense and explain any questions might need to ask the client.

Description Land Buildings Contruction in Progress Machinery and equipment Description Buildings Machinery and equipment PBC SOUTHWEST CORPORATION Analysis of PP&E and Related Accum. Depr For the Year Ended December 31, 2016 Assets Per Ledger Final 12/31/15 Additions Retirements 12/31/16 215,000 210,000 5,000 580,000 17,500 597,500 250,000 97,000 347,000 385,000 56,560 26,000 415,560 1,575,060 176,060 26,000 1,425,000 Accumulated Depreciation Per Ledger Final 12/31/15 Additions Retirements 12/31/16 7,550 290,000 297.550 39,914 213,164 173,250 463,250 47,464 510,714