You are a senior auditor auditing the December 31, 2023 financial statements of Sunland Inc., a manufacturer of novelties and party favours and a user of ASPE. During your inspection of the company garage, you discovered that a 2022 automobile is parked in the company garage but is not listed in the equipment subsidiary ledger. You ask the plant manager about the vehicle, and she tells you that the company did not list the automobile because the company is only leasing it. The lease agreement was entered into on January 1,2023, with Quick Deal New and Used Cars. You decide to review the lease agreement to ensure that the lease should be given operating lease treatment, and you discover the following lease terms: 1. 2. 3. 4. 5. (c2) It has a non-cancellable term of 50 months. The rental is $320 per month at the end of each month. (The PV at 1% per month is $12.543.) The estimated residual value after 50 months is $2,100. (The PV at 1% per month is $1,277.) Sunland guarantees the residual value of $2,100. The automobile's estimated economic life is 60 months. Sunland's incremental borrowing rate is 12% per year (1% per month). Correct Answer (Used) Prepare the journal entry that you believe is necessary to record this lease properly on the client's books. (List debit entry before credit entry. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts) Account Titles and Explanation Your Answer (C3) Vehicles under Lease Obligations under Lease (To record inception of lease) Your answer is partially correct. ate Account Titles and Explanation imber 2023 imber 2023 Lease Receivable Prepare the journal entries to adjust for the accounting error and to record depreciation. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Accumulated Depreciation-Vehicles Lease Liability (Correction of error) Depreciation Expense Accumulated Depreciation-Vehicles Debit (To record depreciation expense) 13,820 Debit 12543 Credit 2100 13,820 Credit 12543 2100

You are a senior auditor auditing the December 31, 2023 financial statements of Sunland Inc., a manufacturer of novelties and party favours and a user of ASPE. During your inspection of the company garage, you discovered that a 2022 automobile is parked in the company garage but is not listed in the equipment subsidiary ledger. You ask the plant manager about the vehicle, and she tells you that the company did not list the automobile because the company is only leasing it. The lease agreement was entered into on January 1,2023, with Quick Deal New and Used Cars. You decide to review the lease agreement to ensure that the lease should be given operating lease treatment, and you discover the following lease terms: 1. 2. 3. 4. 5. (c2) It has a non-cancellable term of 50 months. The rental is $320 per month at the end of each month. (The PV at 1% per month is $12.543.) The estimated residual value after 50 months is $2,100. (The PV at 1% per month is $1,277.) Sunland guarantees the residual value of $2,100. The automobile's estimated economic life is 60 months. Sunland's incremental borrowing rate is 12% per year (1% per month). Correct Answer (Used) Prepare the journal entry that you believe is necessary to record this lease properly on the client's books. (List debit entry before credit entry. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts) Account Titles and Explanation Your Answer (C3) Vehicles under Lease Obligations under Lease (To record inception of lease) Your answer is partially correct. ate Account Titles and Explanation imber 2023 imber 2023 Lease Receivable Prepare the journal entries to adjust for the accounting error and to record depreciation. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Accumulated Depreciation-Vehicles Lease Liability (Correction of error) Depreciation Expense Accumulated Depreciation-Vehicles Debit (To record depreciation expense) 13,820 Debit 12543 Credit 2100 13,820 Credit 12543 2100

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter4: Professional Liability, Auditor Judgment Frameworks, And Professional Responsibilities

Section: Chapter Questions

Problem 54RSCQ

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