CA24-2 (Disclosures Required in Various Situations) Ace Inc. produces electronic components for sale to manufacturers of radios, television sets, and digital sound systems. In connection with her examination of Aces financial statements for the year ended December 31, 2011, Gloria Rodd, CPA, completed field work 2 weeks ago. Ms. Rodd now is evaluating the significance of the following items prior to preparing her auditors report. Except as noted, none of these items have been disclosed in the financial statements or notes. Item 3 A major electronics firm has introduced a line of products that will compete directly with Aces primary line, now being produced in the specially designed new plant. Because of manufacturing innovations, the competitors line will be of comparable quality but priced 50% below Aces line. The competitor announced its new line during the week following completion of field work. Ms. Rodd read the announcement in the newspaper and discussed the situation by telephone with Ace executives. Ace will meet the lower prices that are high enough to cover variable manufacturing and selling expenses but will permit recovery of only a portion of fixed costs. Item 4 The companys new manufacturing plant building, which cost $2,400,000 and has an estimated life of 25 years, is leased from Wichita National Bank at an annual rental of $600,000. The company is obligated to pay property taxes, insurance, and maintenance. At the conclusion of its 10-year noncancellable lease, the company has the option of purchasing the property for $1. In Aces income statement, the rental payment is reported on a separate line. Instructions For each of the items on page 1371, discuss any additional disclosures in the financial statements and notes that the auditor should recommend to her client. (The cumulative effect of the four items should not be considered.)