You are doing the audit of the UTE Corporation, for the year ended December 31, 2011. The following schedule for the property, plant, and equipment and related allowance for depreciation accounts has been prepared by the client. You have compared the opening balances with your prior year€™s audit documentation.

The following information is found during your audit:
1. All equipment is depreciated on the straight-line basis (no salvage value taken into consideration) based on the following estimated lives: buildings, 25 years; all other items, 10 years. The corporation€™s policy is to take one-half year€™s depreciation on all asset acquisitions and disposals during the year.
2. On April 1, the corporation entered into a 10-year lease contract for a die-casting machine with annual rentals of $50,000, payable in advance every April 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 useful life of the machine is 10 years with no salvage value. The corporation recorded the die-casting 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.
3. 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).
4. 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.
5. The amount shown in the machinery and equipment asset retirement column represents cash received on September 5, upon disposal of a machine acquired in July 2007 for $480,000. The bookkeeper recorded depreciation expense of $35,000 on this machine in 2011.
6. Crux City donated land and building appraised at $100,000 and $400,000, respectively, to the UTE Corporation for a plant. On September 1, the corporation began operating the plant. Because no costs were involved, the bookkeeper made no entry for the foregoing transaction.
a. In addition to inquiry of the client, explain how you would have found each of these six items during the audit.
b. Prepare the adjusting journal entries with supporting computations that you would suggest at December 31, 2011, to adjust the accounts for the preceding transactions.
Disregard income taximplications.*

Transcribed Image Text:

UTE Corporation Analysis of Property, Plant, and Equipment and Related Allowance for Depreciation Accounts Year Ended December 31, 2011 Per Books Additions Retirements 12/31/11 Description 12/31/10 Assets Land Buildings Machinery and equipment S 225,000 1,200,000 3,850,000 50,000 175,000 404,000 S 275,000 1375,000 3,994,000 $260,000 5,644,000 260,000 S 5,275,000 $629,000 Allowance for Depreciation Building Machinery and equipment S 600,000 1,732,500 S 51,500 392,200 S 443,700 S 651,500 2,124,700 2,332,500 2,776,200