Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets

Use the following information for Problems 12-30 and 12-31:

Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.

AND SO ON

Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?

Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?


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Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2011, and requires annual rental payments of $413,971 each January 1, starting January 1, 2011. Winston’s incremental borrowing rate is 10%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is $2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to un-reimbursable lessor costs.

(Round all numbers to the nearest dollar.)
(a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor.
(b) Prepare the journal entry or entries to record the transaction on January 1, 2011, on the books of Winston Industries.
(c) Prepare the journal entry or entries to record the transaction on January 1, 2011, on the books of Ewing Inc.
(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2011.
(e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2011. (Prepare a lease amortization schedule for 2 years.)
(f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2011, for both the lessee and the lessor.


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