You are a senior auditor auditing the December 31, 2020 financial statements of Blossom Inc., a manufacturer of novelties and party favours and a user of ASPE. During your inspection of the company garage, you discovered that a 2019 Shirk automobile is parked in the company garage but is not listed in the equipment subsidiary ledger. You ask the plant manager about the vehicle, and she tells you that the company did not list the automobile because the company is only leasing it. The lease agreement was entered into on January 1, 2020, with Quick Deal New and Used Cars. You decide to review the lease agreement to ensure that the lease should be given operating lease treatment, and you discover the following lease terms. 1. 2. 3. It has a non-cancellable term of 50 months. The rental is $410 per month at the end of each month. (The PV at 1% per month is $16,070.) The estimated residual value after 50 months is $2,000. (The PV at 1% per month is $1,216.) Blossom guarantees the residual value of $2,000. The automobile's estimated economic life is 60 months. Blossom's incremental borrowing rate is 12% per year (1% per month). 4. 5. Your answer is partially correct. Prepare the journal entry that you believe is necessary to record this lease properly on the client's books. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Vehicles under Lease (To record inception of lease.) Prepare the journal entries to adjust for the accounting error and to record depreciation. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 Interest Expense (Correction of error.) December 31, 2020 Depreciation Expense Accumulated Depreciation - Vehicles under Lease (To record depreciation expense.) e Textbook and Media List of Accounts