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CHAPTE R 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 297

PROBLEM 11: FIXED ASSET SYSTEM

WILDCAT EXPLORATION COMPANY
PO. Box 5478
.
Baton Rouge, Louisiana 56758
JOINT INTEREST BILLING

INVOICE DATE: August 23, 2009
INVOICE NO.: DNS3948
TERM: net 20 days from receipt
BILLING PERIOD: September 19–August 19, 2009
Property: Dutch North Sea—K/11
Percentage Interest: .1875
DESCRIPTION TOTAL AMOUNT PERCENTAGE DUE

Tubing $291,876.69 $ 37,851.88
Wellhead Assembly 976.25 183.05
Installation Cost 6,981.38 1,309.01
Permits 3,297.28 618.24
Site Prep & Cleanup 4,298.78 806.02
Contract Drilling 415,345.82 77,877.34
Bits 7,394.12 1,386.40
Equipment Rental 8,109.33 1,520.50
Communications 812.77 152.49
Testing and Drafting 15,980.23 2,996.29
Inspection 3,980.13 746.27
Completion Costs 1,980.11 371.27

TOTAL $761,032.89 $125,818.76

c. What happens if a competitor comes out with a new period? Is it the auditor’s responsibility to be aware
model in two years rather than four? of external regulatory conditions that might affect
d. How does the auditor verify the numbers that the the value of the patent? For example, what if seven
fixed asset department calculated at the end of the more states prohibit the use of radar detectors?

Internal Control Cases

1. Holly Company—Payroll and currently employs 185 workers. Much of the manu-
facturing work involves casual labor in the lumberyard
Systems (Small Company Uses
and sawmill. The work is hard and employees often
Manual Procedures with move on after a few months. Although the company
PC Support) does not issue audited financial statements, its owner
Holly Company is a small family-run manufacturer of has retained your firm to conduct a review of its internal
wooded garden furniture, sheds, and storage containers. controls. The focus of your review at this time is the
The company is located outside Pittsburgh, Pennsylvania, payroll process.