What is the answer of this with solution and explanation. 472 Chapter 13Additional information is discovered as follows:1) The purchase of the plant included a building and machinery. Whenthe plant was purchased, an appraisal showed that the building wasvalued at P390,000 and the machinery at P260,000.2) Depreciation has been recorded each year at 10% of the balance in theaccount.The 10% was chosen because the property is beingdepreciated over 10 years for tax purposes. Subsequent investigationindicates that the expected lives at the time of acquisition were:building - 20 years, machinery - 8 years.3) Each insurance payment was made on January 1 and was for a 2-yearpolicy.4) The machine that was sold in 2018 had an original cost of P8,000.5) All purchases and sales of property, plant, and equipment itemsoccurred at the beginning of the year indicated.REQUIRED:Prepare adjusting entries at December 31, 2018, to correct the booksassuming they have not been'closed for the year. 13-9. Audit of Property, Plant and EquipmentAs the first auditor of the AFH Company you discover that the followingentries have been made in the property, plant, and equipment account:Property, Plant, and Equipment20162016Depreciation63,100Plant purchasedLegal feesInsurance600,0007,00024,0002017201720,000Depreciation68,790RepairsAddition to building100,00020182018Machine sold5,00030,000RepairsDepreciation74,21028,00070,000InsuranceMachine purchased

The question is related to adjusting Entires as om 31st December 2018.The details regarding the…

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What is the answer of this with solution and explanation.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity

Section: Chapter Questions

Problem 32CYBK

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17. Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant, and equipment for a continuing nonpublic client? Group of answer choices Audit of selected purchases and retirements for the last few years Audit of changes in the accounts since inception of the company Direct audit of the ending balance Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts
2. XYZ is conducting an audit of the property, plant, and equipment records of AQA Corporation. XYZ selected two specific assets for closer inspection. XYZ has examined documentation related to each asset's original purchase and compared it to the recorded cost, physically inspected the item to determine that it is still in the possession of the company and conducted other similar assurance procedures. The final step in the audit of these accounts is to test the calculations of depreciation expense and accumulated depreciation. XYZ has asked you to perform this final procedure for 2018. Below is a schedule of the two assets, with the depreciation values determined by AQA. The building was depreciated by the straight-line method, and the truck by the double-declining balance method. Determine if the indicated depreciation values are correct. Item Cost Purchase Service Salvage Value Depreciation Expense for Accumulated Date Life Depreciation at 2018 12/31/18 Building RO 1,200,000 July 1,…
You have been asked to carry out the audit of the property plant and equipment of Simons Engineering Limited for the year ended 31 March. The draft accounts show the following movements on non current assets in the year: Freehold Land & Buildings Plant & Machinery Motor Vehicles TOTAL Cost or Valuation GHC GHC GHC GHC At 1st April 353,000 406,000 173,000 932,000 Additions 292,000 86,000 65,000 443,000 Disposals - (29,000) (47,000) (76,000) At 31st March 645,000 463,000 191,000 1,299,000 Freehold Land & Buildings Plant & Machinery Motor Vehicles TOTAL Depreciation GHC GHC GHC GHC At 1st April 132,000 187,000 74,000 393,000 Charge for the year 12,900…
You have been asked to carry out the audit of the property plant and equipment of Simons Engineering Limited for the year ended 31 March. The draft accounts show the following movements on non current assets in the year: Freehold Land & Buildings Plant & Machinery Motor Vehicles TOTAL Cost or Valuation GHC GHC GHC GHC At 1st April 353,000 406,000 173,000 932,000 Additions 292,000 86,000 65,000 443,000 Disposals - (29,000) (47,000) (76,000) At 31st March 645,000 463,000 191,000 1,299,000 Freehold Land & Buildings Plant & Machinery Motor Vehicles TOTAL Depreciation GHC GHC GHC GHC At 1st April 132,000 187,000 74,000 393,000 Charge for the year 12,900…
In the audit of the books of Yellow Corporation for the year 2020, the following items and information appeared in the Production Machine account of the client: Date Particulars Debit Credit 01/01 Balance–Machine 1, 2, 3, and 4 at P180,000 each P 720,000 02/28 Machine 5 Machine 1 396,000 P 6,000 09/01 Machine 6 192,000 12/01 Machine 7 432,000 The Accumulated Depreciation account contained no entries for the year 2020. The balance on January 1, 2020 per your audit, was as follows: Machine 1 P168,750 Machine 2 78,750 Machine 3 67,500 Machine 4 45,000 Based on your further inquiry and verification, you noted the following: 1. Machine 5 was purchased for cash; it replaced Machine 1, which was sold on this date for P6,000. 2. Machine 2 was destroyed by the thickness of engine oil used leading to explosion on December 1, 2020. Machine 7 was to replace Machine 2. 3. Machine 3 was traded in for Machine 6 at an allowance of P24,000; the difference was paid in cash and…
You are engaged in the audit of the financial statements of Holman Corporation for the year ended December 31, 20X6. The accompanying analyses of the Property, Plant, and Equipment and related accumulated depreciation accounts have been prepared by the chief accountant of the client. You have traced the beginning balances 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; all other items, 10 years. The company’s policy is to take one half-year’s depreciation on all asset additions and disposals during the year. Your audit revealed the following information: The company completed the construction of a wing on the plant building on June 30. The service life of the building was not extended by this addition. The lowest construction bid received was $17,500, the amount recorded in the Buildings account. Company personnel…
You are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?b. Based on the audit of the assets accounts and ignoring other accounts, are the overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?
Zest Airlines Philippines (FTG) FTG & CO. an accounting and auditing firm was engaged by Zest Airlines Philippines to audit the company for reporting year ended December 31, 2020. You were assigned by FTG to plan the audit, and based on your experienced of the environment, your team will focus on property, plant and equipment material risk that might arise. Based on the your examination and test of record you traced the following transactions: On January 1, 2020, Zest Airlines contracted with LIPAD Aircraft to construct an aircraft to Zest’s specifications at a cost ofP20,000,000. During 2020, Zest paid LIPADP4,000,000 on January 1, and anotherP2,500,000 on September 30. On the same day, January 1, Zest borrowed P3,600,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2020. The…
Zest Airlines Philippines (FTG) FTG & CO. an accounting and auditing firm was engaged by Zest Airlines Philippines to audit the company for reporting year ended December 31, 2020. You were assigned by FTG to plan the audit, and based on your experienced of the environment, your team will focus on property, plant and equipment material risk that might arise. Based on the your examination and test of record you traced the following transactions: On January 1, 2020, Zest Airlines contracted with LIPAD Aircraft to construct an aircraft to Zest’s specifications at a cost of P20,000,000. During 2020, Zest paid LIPAD P4,000,000 on January 1, and another P2,500,000 on September 30. On the same day, January 1, Zest borrowed P3,600,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2020. The remaining amount paid to LIPAD was financed from available working capital. Zest has approximately P16,000,000 of additional debt outstanding at an…
Problem No. 7 Use the following information for the next three (3) questions: During your audit of AACA Company, you have identified several transactions by the client related to its fixed assets acquisitions below. The company used a single account, Property and equipment, to record the transactions: Property and equipment Acquisition price of land and building P960,000 Options taken out on several pieces of property 16,000 List price of machinery purchased 318,400 Freight on machinery purchased including insurance of P1,000 4,000 Repair to machinery resulting from damage during shipment 1,480 Cost of removing old machinery 4,500 Driveways and sidewalks 102,000 Building remodeling 400,000 Utilities paid since acquisition of building 20,800 P1,827,180 Based on property tax assessments, which are believed to fairly represent values involved, the building is worth thrice as much as the land.…
As the recently appointed auditor for Cheyenne Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2020, are prepared. The controller for Cheyenne Corporation mentions that only one account is kept for intangible assets. The account is shown below. Jan. 4 Jan. 5 Jan. 31 Feb. 11 March 31 April 30 June 30 Intangible Assets Research and development costs Legal costs to obtain patent Payment of 7 months' rent on property leased by Cheyenne Premium on common stock Unamortized bond discount on bonds due March 31, 2040 Promotional expenses related to start-up of business Operating losses for first 6 months Debit 934,000 72,960 86,800 93,600 228,800 259,000 Credit 234,000 Balance 934,000 1,006,960 1,093,760 859,760 953,360 1,182,160 1,441,160 Prepare the entries necessary to correct this account. Assume that the patent has a useful life of 10 years. (Credit account titles are automatically indented when amount is entered. Do not…
PROBLEM 4: You are the senior auditor in charge for the annual audit of Samal Corp. for the year ended December 31, 2020. You checked mostly the information in the financial records for this small/medium entity and was highly satisfied. You noticed however, that the property account consisted of land which was acquired on January 1, 2018 together with eight identical buildings equally built on it. The initial purchase price was P48,000,000, thirty percent of which is attributable to the land. The eight buildings were estimated to have a 50 years as economic lives of which two of them were used for general and administrative offices while the rest were leased out to independent parties under operating lease arrangements. The following costs were also incurred during acquisition: Non-refundable transfer taxes paid to government 3,000,000 Title insurance and legal fees attributable to the acquisition 1,000,000 Actual borrowing costs 220,000 Marketing and advertisements 100,000 Office…