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