Chapter 13, Problem 9SC

Case 9

ABCDE Technologies, Inc., designs, manufactures, and markets and extensive line of POC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competition. In fact, man OEM companies ran into financial difficulty in 2017 because of fierce competition. The following tables are part of the company’s financial statements for 2016 and 2017:

1. Determine the red flags that exist in these financial statements. Describe the scenarios that might contain these symptoms.

2. Based upon the red flags and scenarios you identified, determine what types of financial statement fraud the company may be involved in (Hint: Pay careful attention to cost of goods sold, sales, and allowance for doubtful accounts.)