Roger Case - Ceo of Lakeside

Discussion Question

Discussion Questions

1. Why would a company's principal officer not know about an important accounting pronouncement by the FASB?

Roger as president of Lakeside confessed that he knew nothing about this particular accounting procurement. He suggested that the audit team calculate an appropriate adjustment to capitalize this interest for the current period. He has assumed that the company's method of accounting was correct.

2. Why is depreciation expense not recorded until after an asset is put into use?

Regarding to depreciable asset it is related to characteristic of fix asset. Fix asset is type of asset used for more than 12 month and it can be used when it is ready to use and recognize depreciation when it is already used.

3. Rogers suggested that Abernethy and Chapman calculate the amount of interest that should be capitalized this year for the construction project. Since the financial statements are the responsibility of the management, is this action appropriate for an audit engagement?

Actually, the function of calculating capitalized interest is the responsibility of management of company. If there is mistake in calculating interest or company does not consider to pronouncement of FASB related to capitalization, it means that it will create possibility of improper capitalization of expense was an issue of accounting scandals. However, if auditor has already given opinion beside unqualified opinion, company considers needing evaluation, then it is possible for auditor to provide suggestion.

4. What should Andrews do now concerning the lease arrangement that has been created for the seventh store? Will Lakeside's financial statements be fairly presented if this lease is reported as an operating lease rather than a capitalized lease? Is inclusion within the notes to the financial statements an adequate way of reporting this lease?

Actually Lakeside has made payment $ 21,000 on November 28, 2009 to Rogers Development Company, the corporation that constructs their building and was leasing it to Lakeside. However, the building has useful life at least 25 years and the one year contract is for a period of time less than 75% of the property's economic life. Thus, the residual value is not guaranteed, the payment fails to satisfy the 90% present value criterion. Look at the problem, this lease does not meet any test for being capital lease. Thus company supposed to report t as operating lease.

5. Why are related party transactions separately disclosed in financial statement notes?

It because Roger's strong vision is that growth is important. It means that Lakeside has to be able to borrow money and needs a good debt. By financing this building, the construction