You are doing the audit of Ute Corporation for the year ended 31 December 20X9. The following

Question:

You are doing the audit of Ute Corporation for the year ended 31 December 20X9. The following schedule for the property, plant, and equipment and related accumulated depreciation accounts has been prepared by the client. You have compared the opening balances with your prior-year's audit working papers.

The following information is found during your audit:
1. All equipment is depreciated on the straight-line basis (no residual value taken into consideration), based on the following estimated lives: buildings, 25 years; all other items, 10 years. The company's policy is to take one-half-year's depreciation on all asset acquisitions and disposals during the year.
2. On 1 April the company entered into a 10-year lease contract for a die-casting machine with annual rentals of $50 000, payable in advance every 1 April. The lease is cancellable 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 residual 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 30 June. The useful life of the building wasn't 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; labour, $55 000; overhead, $30 000).
4. On 18 August, $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 5 September, on disposal of a machine acquired in July 20X7 for $480 000. The accountant recorded depreciation expense of $35 000 on this machine in 20X1.
REQUIRED
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 calculations that you would suggest at 31 December 20X9 to adjust the accounts for the preceding transactions. Disregard income tax implications.