Emma Emerson is a proud woman with a problem. Her daughter has been accepted into a prestigious law school. WhileMs. Emerson beams with pride, she is worried sick about how to pay for the school; she is a single parent who hasworked hard to support herself and her three children. She had to go heavily into debt to finance her own education.Even though she now has a good job, family needs have continued to outpace her income and her debt burden isstaggering. She knows she will be unable to borrow the money needed for her daughter's law school.Ms. Emerson is the chief financial officer (CFO) of a small manufacturing company. She has just accepted a new joboffer. Indeed, she has not yet told her employer that she will be leaving in a month. She is concerned that her year-endincentive bonus may be affected if her boss learns of her plans to leave. She plans to inform the company immediatelyafter receiving the bonus. She knows her behavior is less than honorable, but she believes that she has been underpaidfor a long time. Her boss, a relative of the company's owner, makes twice what she makes and does half the work. Whyshould she care about leaving with a little extra cash? Indeed, she is considering an opportunity to boost the bonus.Ms. Emerson's bonus is based on a percentage of net income. Her company recently introduced a new product line thatrequired substantial production start-up costs. Ms. Emerson is fully aware that GAAP requires these costs to beexpensed in the current accounting period, but no one else in the company has the technical expertise to know exactlyhow the costs should be treated. She is considering misclassifying the start-up costs as product costs. If the costs aremisclassified, net income will be significantly higher, resulting in a nice boost in her incentive bonus. By the time theauditors discover the misclassification, Ms. Emerson will have moved on to her new job. If the matter is brought to theattention of her new employer, she will simply plead ignorance. Considering her daughter's needs, Ms. Emerson decidesto classify the start-up costs as product costs. Question a (# Units)Question b (Effects of misclassification on investors and creditors)Question c (Effects of misclassification on income taxes)Question d (Fraud triangle)Question e (Two violations of ethical standards)Question f (Maximum Penalty)Question g (Internal Controls)

The answer is stated below: Note: Answering the first three subparts as there are multiple…

Answered: JOU, ne will be unable to borrow the…

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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JOU, ne will be unable to borrow the money needed for f financial officer (CFO) of a small manufacturing t yet told her employer that she will be leaving in a affected if her boss learns of her plans to leave. Sh She kn ows her behoie ic less then honeroble