AUDIT OF LEASES AUDITING CASE 1: PUTTER Inc. You are conducting an audit of PUTTER Company, a dealer of specialized machinery and noted the following information about a transaction that involved leasing to CALLER Inc. dated January 1, 2017. Annual rental payable at the end of each year Lease term and useful life of machinery Cost of machinery Residual value guarantee $3,000,000 5 years $8,000,000 1,000,000 300,000 12% 3.60 0.57 Initial direct cost paid by lessor Implicit interest rate PV of an ordinary annuity of 1 for 5 periods at 12% PV of 1 for 5 periods at 12% 1. What amount should be reported as gross profit in relation to the sales type lease? 2. What amount of interest income should be reported for 2017? 3. What is the carrying amount of lease receivable on December 31, 2017? ODM