As a recently appointed auditor for Gibbs Manufacturing Co., the Manager of the audit, asked you to examine selected accounts before issue the financial statement of 12/31/10, to be audited. Gibbs Manufacturing Co. was incorporated on 1/2/10 but was unable to begin manufacturing activities until 8/1/10 because new factory facilities were not completed until that date. The Land and Building accounts at 12/31/14 per books was as follows:

Date Item Amount

1/31/10 Land and dilapidated building $200,000

2/28/10 Cost of removing building 4,000

4/1/10 Legal fees 6,000

5/1/10 Fire insurance premium payment 5,400

5/1/10 Special tax assessment for streets 4,500

5/1/10 Partial payment of new building construction 170,000

8/1/10 Final payment on building construction 170,000

8/1/10 General expenses 30,000

12/31/10 Asset write-up 75,000

Total$624,900

Additional information:

1. To acquire the land and building on 1/31/10, the company paid $100,000 cash and 1,000 shares of its common stock (par value = $100/share) which is very actively traded and had a market value per share of $140.

2. When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000, but also received $1,500 from the sale of salvaged material.

3. Legal fees covered the following:

Cost of organization $2,500

Examination of title covering purchase of land 2,000

Legal work in connection with the building construction 1,500

Total $6,000

4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2010.

5. General expenses covered the following for the period 1/2/10 to 8/1/10.

President's salary $20,000

Plant superintendent covering supervision of new building 10,000

Total $30,000

6. Because of the rising land costs, the president was sure that the land was worth at least $75,000 more than what it cost the company.

7. The straight method is used to depreciation fixed assets. The useful life of building is 40 years, with residual value of $20,000.

Based on the preliminary review, the manager lists the issues to be solved before the meeting with the management of Gibbs Manufacturing:

1. Prepare a brief explanation of each management assertion related to misstatement for the period under audit.

2. Determine the proper balances as of 12/31/10, and prepare an analysis and present recommendation for each of the situations above.

3. Prepare a draft of the correct presentation in the financial statements as of 12/31/10.

4. Mention the audit objectives that are directly related with the management assertions that are affected.