EBK PRINCIPLES OF AUDITING & OTHER ASSU
EBK PRINCIPLES OF AUDITING & OTHER ASSU
21st Edition
ISBN: 9781260299434
Author: WHITTINGTON
Publisher: YUZU
Question
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Chapter 15, Problem 27QRA
To determine

Provide audit work necessary with respect to this long-term liability during your present year-end audit.

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You are the independent auditor ­engaged to audit Millay Corporation’s December 31, 2020, 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 2020 and, by December 31, 2020, sold 120,000 to various retailers for $500 each. Each dishwasher is under a 1-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 2020. 2.   In response to your attorney’s letter, Morgan Sondgeroth, Esq., has informed you that Millay has been cited for dumping toxic waste into the Kishwaukee River. Clean-up costs and fines amount to $2,750,000. Although the case is still being contested, Sondgeroth is certain that Millay will most probably have to pay the fine and clean-up…
You are the independent auditor engaged to audit Broady Corporation’s December 31, 2022, financial statements. Broady manufactures small appliances. During the course of your audit, you discovered the following contingent liabilities. 1. Broady began production of a new blender in August 2022 and, by December 31, 2022, sold 381,000 to various retailers for $60 each. Each blender is under a one-year warranty. The company estimates that its warranty expense per blender will amount to $4. At year-end, the company had already paid out $831,000 in warranty expenses. Broady‘s income statement shows warranty expenses of $831,000 for 2022. Broady accounts for warranty costs on the accrual basis. 2. Broady is the defendant in a patent infringement lawsuit by Crusher Blenders, Inc. over Broady‘s use of a blade design and ice crushing technique in its new blender. Broady’s general counsel claims that, if the suit goes against Broady, the loss would be approximately $25,000,000; however, their…
Lechon Corporation has multiple long-term arrangement containing a debt covenant. As of December 31, 2022, the company disclosed current liabilities of P450,786 in its financial statements. The following notes refer to these six (6) long-term loans each amounting to P75,131:Note 1: The specific requirements in the debt covenant have to be met as at December 31 every year. The loan is due in 3 years. The company breaches the debt covenant before the period end. As a result, the loan becomes payable on demand.Note 2: Same details in note 1, but the loan arrangement stipulates that the entity has a grace period of 3 months to rectify the breach and during which the lender cannot demand immediate repayment.Note 3: Same details in note 1, but the lender agreed not to demand repayment as a consequence of the breach. The company obtains this waiver on December 31 and the waiver is for a period of more than 12 months after the period end. Note 4: Same details in note 3, however the company…

Chapter 15 Solutions

EBK PRINCIPLES OF AUDITING & OTHER ASSU

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