Analyze the Income Statement below. Complete the following:a) Calculate the relevant ratios indicating red flags for financial statement fraud.b) What changes are evident?c) What fraud scheme could be present and why?d) What are your detection steps to investigate the potential scheme?201420132$%SalesCost of goods soldGross marginExpenses:Selling expenses$1,000,000$800,000$400,000$400,000100100$600,0006050$400,0004050$120,000$88,000$208,000$150,0001515$100,000$250,000Admin expenses10112526$150,000$60,000$192,00024Income before taxesIncome taxesNet income15$80,000$112,00010$90,00014

A red flag is an alert or signal that a company's stock, financial statements, or news reports may…

Analyze the Income Statement below. Complete the following: a) Calculate the relevant ratios indicating red flags for financial statement fraud. b) What changes are evident? c) What fraud scheme could be present and why? d) What are your detection steps to investigate the potential scheme? 2014 2013 2$ $800,000 $4 % Sales Cost of goods sold Gross margin Expenses: Selling expenses Admin expenses $1,000,000 $600,000 $400,000 100 100 60 $400,000 50 40 $400,000 50 $120,000 $88,000 $208,000 $192,000 $80,000 $112,000 $150,000 $100,000 $250,000 15 15 10 11 25 26 Income before taxes $150,000 $60,000 $90,000 15 24 Income taxes 10 14 Net income 9

Analyze the Income Statement below. Complete the following: a) Calculate the relevant ratios indicating red flags for financial statement fraud. b) What changes are evident? c) What fraud scheme could be present and why? d) What are your detection steps to investigate the potential scheme? 2014 2013 2$ $800,000 $4 % Sales Cost of goods sold Gross margin Expenses: Selling expenses Admin expenses $1,000,000 $600,000 $400,000 100 100 60 $400,000 50 40 $400,000 50 $120,000 $88,000 $208,000 $192,000 $80,000 $112,000 $150,000 $100,000 $250,000 15 15 10 11 25 26 Income before taxes $150,000 $60,000 $90,000 15 24 Income taxes 10 14 Net income 9

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Fraud

Fraud in accounting is the planned manipulation of financial documents to make a false appearance of corporate financial health. Moreover, it includes an employee, accountant, or the company itself misleading investors and shareholders.

Question

100%

Analyze the Income Statement below. Complete the following:
a) Calculate the relevant ratios indicating red flags for financial statement fraud.
b) What changes are evident?
c) What fraud scheme could be present and why?
d) What are your detection steps to investigate the potential scheme?
2014
2013
2$
%
Sales
Cost of goods sold
Gross margin
Expenses:
Selling expenses
$1,000,000
$800,000
$400,000
$400,000
100
100
$600,000
60
50
$400,000
40
50
$120,000
$88,000
$208,000
$150,000
15
15
$100,000
$250,000
Admin expenses
10
11
25
26
$150,000
$60,000
$192,000
24
Income before taxes
Income taxes
Net income
15
$80,000
$112,000
10
$90,000
14

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