How you advised your client to account for this lease

Reference no: EM133504269

Question: Writing (Short-Term Lease vs. Finance Lease) You are auditing the December 31, 2025, financial statements of Hockney, Inc., manufacturer of novelties and party favors. During your inspection of the company garage, you discovered that a used automobile not listed in the equipment subsidiary ledger is parked there. You ask Stacy Reeder, plant manager, about the vehicle, and she tells you that the company did not list the automobile because the company was only leasing it and elected to use the short-term lease accounting option for the lease. The lease agreement was entered into on January 1, 2025, with Crown New and Used Cars. You decide to review the lease agreement to ensure that the lease should be afforded short-term lease treatment, and you discover the following lease terms. 1. Non-cancelable term of 2 years. 2. Rental of $3,240 per year (at the end of each year). (The present value at 8% per year is $5,778.) 3. Expected residual value after 2 years is $500. (The present value at 8% per year is $429.) Hockney guarantees the residual value of $500. 4. Estimated economic life of the automobile is 2.5 years. 5. Hockney's incremental borrowing rate is 8% per year. Instructions You are a senior auditor writing a memo to your supervisor, the audit partner in charge of this audit, to discuss the above situation. Be sure to include

(a) why you inspected the lease agreement,

(b) what you determined about the lease, and

(c) how you advised your client to account for this lease. Explain every journal entry that you believe is necessary to record this lease properly on the client's books. (It is also necessary to include the fact that you communicated this information to your client.)

Reference no: EM133504269

Questions Cloud

List take-away items that you will adopt : What is trending in your current field or the field you want to enter into? Is this person a thought leader? List 2 take-away items that you will adopt or found

Summarize interaction you identify in visual representation : Create a document (250 to 500 words) that summarizes the interaction you identified in your visual representation.

Create innovation and change : Evaluate how systems thinking was applied to the case study to create innovation and change.

Describe the transactional model of communication : Create a deliverable that describes transactional model of communication. Identify specific communication interaction where you experience this model in action.

How you advised your client to account for this lease : how you advised your client to account for this lease. Explain every journal entry that you believe is necessary to record this lease properly on the client

Explain how the interactions relate to your identity : COMM 1250- Describe at least three different types of communication interactions that we covered. Explain how these interactions relate to your identity.

Livestock grazing endophyte infected tall fescue : What are five major problems that arise from livestock grazing endophyte infected tall fescue?

What organizational policies : What organizational policies (e.g., prisons, police departments, etc.) contribute to the mass incarceration of Black communities in the United States?

What are the four audit evidence decisions : What are the four audit evidence decisions. Explain what the four audit evidence decisions are. Later explain each audit.

User Account

All Pages