Background Information
Your audit firm has recently been engaged as the new auditor for Pinnacle Manufacturing effective for the audit of the tinancial statements for the year ended December 31, 2013 Pinnacle is a medium-sized corporation, with its headquarters located in Detroit, Michigan. The company is made up of three divisions. The first division, Welburn, has been in existence for 35 years and creates powerful diesel engines for boats, trucks, and commercial farming equipment. The second division, Solar-Electro, was recently acquired from a high-tech manufacturing firm based out of Dallas, Texas. Solar-Electro produces state-of-the-art, solar-powered engines. The solar-powered engine market is relatively new, and Pinnacle's top management believes that the Solar-Electro division will be extremely profitable in the future as the focus on global climate change continues and when highly anticipated EPA regulations make solar-powered engines mandatory for certain public transportation vehicles. Finally, the third division, Machine-Tech, engages in a wide variety of machinc scrvice and repair operations. This division, also new to Pinnacle, is currently in its second year of operations. Pinnacle's board of directors has recently considered selling the Machine-Tech division in order to focus more on core operations enginc manufacturing. However, before amy sale will be made, the board has agreed to evaluate this year's operating results. Excellent operating results may have the effect of keeping the division a part of Pinnacle for the next few years. The vice president for Machine-Tech is committed to making it profitable.