FASB Codification : You are an audit partner in Mosby, Aldrin and Scherbotsky, LLC. Stinson Co, has been an audit client for ten years. Stinson Company is owned by Lisa Stinson who is very astute businesswoman but she is not at all knowledgeable about GAAP. In fact over the years she has complained about the “stupid GAAP rules". Lisa has built Stinson into a $100 million in sales company that went public several years ago.
You ran into her waiting in line at a restaurant and she indicated that she had a problem you need to address for her. She said: "I know you remember all of the equipment we leased about three years ago. Remember, we had disagreements on how the lease should be handled. You made us treat it as a purchase and record a related liability of about $5 million, as I recal. The lease was an eight- year lease expanding rapidly and the leased equipment is no longer adequate for our needs. We have decided to buy or lease new high output equipment. The lease on the original equipment allows us to sub-lease the equipment, which is our plan since the lease has another four to five years to go. My question to you is if we sublease the equipment, are we allowed to remove it and the liability from our books? We need to get the debt off our books."
Instructions:
1. Determine the issue (s)
2. Write a memo to the client relaying your research about it.