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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) FOR MORE CLASSES VISIT www.acc537study.com 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.