ACC 537 Week 4 Textbook P13 13 ( Liability Errors ) Millay Corporations ( Memo and Solution )
Distinction between a direct-financing lease and a sales-type lease ===================================================
ACC 537 Week 4 Textbook P13 13 ( Liability Errors ) Millay Corporations ( Memo and Solution )
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13-13 ( Liability Errors ) You are the independent auditor engaged to audit Millay Corporation ' s December 31 , 2014 , financial statements . Millay manufactures household appliances . During the course of your audit , you discovered the following contingent liabilities .
1 . Millay began production of a new dishwasher in June 2014 and , by December 31 , 2014 , sold 120,000 to various retailers for $ 500 each . Each dishwasher is under a one-year warranty . The company estimates that its warranty expense per dishwasher will amount to $ 25 . At year-end , the company had already paid out $ 1,000,000 in warranty expenses . Millay ' s income statement shows warranty expenses of $ 1,000,000 for 2014 . Millay accounts for warranty costs on the accrual basis . As presented , these contingencies are not reported in accordance with GAAP , which may create problems in issuing a favorable audit report . You feel the need to note these problems in the work papers .
Instructions Heading each page with the name of the company , balance sheet date , and a brief description of the problem , write a brief narrative for above issues in the form of a memorandum to be incorporated in the audit work papers . Explain what led to the discovery of each problem , what the problem really is , and what you