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Adjusting Entries for PP&E (Mandville Corporation)

NOTE: Please consider all elements as this problem has many details.

** See ATTACHED file(s) for complete details **

You are reviewing the pp&e working papers of Mandville Corporation, the lead schedule for the accounts is attached. The following are among the findings relating to changes in the account:

1.LAND: The addition represents the purchase of land adjacent to the company's existing plant and is financed as follows:

- Contract sales price - 2,000 shares of Mandville Corporation Common Stock
- Liabilities assumed by Mandville
- Accrued county taxes at settlement date (4,600)
- Unpaid sewer installation assessment (6,400)

On June 17, the date on which the buyer and seller discussed the transactions, shares of Mandville Corporation stock were selling for $77.50. On June 30, the settlement date/day of the sale, Mandville stock was selling for $70.00 per share. The journal entry for the purchase was recorded as:

Land $151,000
Common Stock $20,000
PIC Excess of Par 120,000
Accrued Taxes Payable 4,600
Accrued Sewer Assessment Payable 6,400

Examination of publicly available records show comparable land ranging from $140,000-$160,000 for the past 18 months.

2. LAND IMPROVEMENTS: This account was increased by three journal entries each recorded with a debit to land improvements and a credit to cash during the year. Each of these improvements related to the new land which was purchased above.

Sidewalk to building $2,500
Repaving of road to bldg 3,500
Chain link fence (replaces rusted
fence currently around property) 4,000

3. BUILDING: The building was constructed by an independent contractor; the contract was fro $473,000. Progress payments were made during construction through use of proceeds or a bank loan for which the building serves as collateral. The interest during construction was capitalized ($22,000) while the interest subsequent to construction but prior to year-end ($20,000) was expensed.

4. EQUIPMENT: The change in equipment was a trade of old book "update printing equipment" for two new computer servers and associated software that will maintain electronic updates. Until recently, updates of outdated portions of guidebooks were printed and 'shrinkwrapped' with the guidebook. Now the updates will be available on Mandville's website. The old equipment had a cost of $60,000 and accumulated depreciation of $50,600 and was worth approximately its book value of $9,400, although the salesperson suggested he was providing the company $19,400 trade-in value. Accordingly, the following entry was made to record the exchange:

Equipment - Computer Servers $110,000
Acc. Depr. (old eq.) 50,600
Cash $90,600
Equipment - printing equipment 60,000
Gain on exchange of assets 10,000

5. DEPRECIATION PROVISIONS: Mandville uses software to calculate depreciation to the exact day.

1) For additions 1-4 prepare any necessary adjusting entries. If in any case your adjusting entry relies on an assumption, provide that assumption.

2) For item 5 prepare a calculation of the depreciation provisions and determine whether they appear reasonable. For this calculation assume that acquisitions, on average, occur at mid-year. If the provision does not appear reasonable, discuss follow-up procedures related to the provisions. Use the table on page 2 of the attachment for your calculations.


Solution Summary

The expert examines adjusting entries for PP&E for Mandville Corporation.