Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 19, Problem 12PS
Summary Introduction
To identify Hartfield's industries deliberate manipulation of financial results by inventory buildup relative to its sales growth.
Introduction:
The financial statements of a company are a formal record of financial activities and it reflects the position of the business.
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Which of the following is most likely to indicate the existence of related parties?a. Elimination of obsolete inventory before the end of the yearb. Does not correct weaknesses in the client's internal control structurec. Unexplained increase in gross profitd. Borrowing money at an interest rate that is much lower than the market interest rate
4. Cost of Goods Sold is increasing at rate that does not match sales or gross profit. While sales and gross profit seem to be trending down, the Cost of Goods Sold. Specifically, we see a drop in sales and gross profit in 2021, yet the cost of goods sold increased. What type of documentation and information should the auditors request to further evaluate for potential fraud? What might explain this inconsistency?
After completing a horizontal and vertical analysis of the Balance Sheet and Income Statement. It is noticed that the companies Accounts Receivables is rising faster than both sales and revenue. This brings up concerns of fraud. What type of documentation and information should the auditors request to further evaluate for potential fraud? What might explain this increase in AR?
Chapter 19 Solutions
Investments, 11th Edition (exclude Access Card)
Ch. 19 - Prob. 1PSCh. 19 - Prob. 2PSCh. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - Prob. 5PSCh. 19 - Prob. 6PSCh. 19 - Prob. 7PSCh. 19 - Prob. 8PSCh. 19 - Prob. 9PSCh. 19 - Prob. 10PS
Ch. 19 - Prob. 11PSCh. 19 - Prob. 12PSCh. 19 - Prob. 13PSCh. 19 - Prob. 14PSCh. 19 - Prob. 15PSCh. 19 - Prob. 16PSCh. 19 - Prob. 1CPCh. 19 - Prob. 2CPCh. 19 - Prob. 3CPCh. 19 - Prob. 4CPCh. 19 - Prob. 5CPCh. 19 - Prob. 6CPCh. 19 - Prob. 7CPCh. 19 - Prob. 8CPCh. 19 - Prob. 9CPCh. 19 - Prob. 10CPCh. 19 - Prob. 11CPCh. 19 - Prob. 12CPCh. 19 - Prob. 13CP
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- EXPLAIN IT SIMPLE AND BRIEFLY. YOU CAN ALSO INCLUDE EXAMPLES.arrow_forwardBarber Technologies designs and develops software to be used for the management of inventory by both retailers and manufacturing firms. Over the past three years, the company has experienced significant competition and a declining market resulting in a significant deficit in retained earnings. In response to this condition, you have suggested that management consider the following: a. Recognize all asset impairments.b. Restructure the long-term debt by committing to make future payments that are less than the basis of the original debt.c. Adjust the par value of common stock to eliminate the deficit in retained earnings. Discuss how the above actions will likely affect: 1. The current ratio, debt-to-equity ratio, and return on equity. 2. The determination of net income in subsequent periods.arrow_forwardIf a company was able to reduce its inventory level while keeping other things constant, we will see a change in which of the following accounting measures for liquidity? An increase in interval measure No change in any liquidity measure. A decrease in quick ratio An increase in cash ratio A decrease in current ratioarrow_forward
- An investor wants to know if a company is manipulating its earnings with the help of allowances for doubtful accounts? What is the best way to do this? A.Look at the level of doubtful accounts as a percentage of sales and percentage of receivables for past years. b.Compare the level of doubtful accounts as a percentage of sales and percentage of receivables with peers in the same industry. c.Analyze the earnings trends without allowances for doubtful allowances and identify earnings pressures if any. d.All of these.arrow_forwardAccountants at UltraTech obtain their values for inventory and total assets, calculate the balance sheet percentage by dividing inventory by total assets for each year and summarize the observations for the relative size of inventory to total assets for each year and percentage change from year-to-year. This would allow them to effectively assess: a. Inventory control compared to competitorsb. If there is an effective return on assetsc. If inventory is being properly managedd. How they are managing liabilitiesarrow_forwardPlease answer with reason for all why the option is correct and why the other options are incorrectPlease answer correct otherwise skip it Which of the following factors could contribute to mistreatments in the revenue cycle? (select all that apply): A. Difficulties in estimating the likelihood of collection within the next year. B. Strict definition of the timing and amount of revenue to be recognized. C. Low volume of sales, cash receipts, and sales adjustment transactions D. Misappropriation of liquid assets generated through cash receipt transactions.arrow_forward
- Ethics within inventory estimates and other creative accounting methods. Channel stuffing, swaps, round tripping, and off-balance sheet transactions are concepts used to inflate revenues. What are these tactics, how can they prevented, or should they be prevented in accounting practices?arrow_forwardThe following situations represent errors and frauds that could occur in financial statements.Required:State how the ratio in question would compare (higher, equal, or lower) to what the ratio should have been had the error or fraud not occurred.a. The company recorded fictitious sales with credits to sales revenue accounts and debits to accounts receivable. Inventory was reduced, and cost of goods sold was increased for the profitable “sales.” Is the current ratio higher than, equal to, or lower than what it should have been?b. The company recorded cash disbursements by paying trade accounts payable but held the checks past the year-end date, meaning that the “disbursements” should not have been shown as credits to cash and debits to accounts payable. Is the current ratio higher than, equal to, or lower than what it should have been? Consider cases in which the currentratio before the improper “disbursement” recording was (1) higher than 1:1, (2) equal to 1:1, and (3) lower than…arrow_forwardWhich of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.arrow_forward
- Which statements below are true? 1. LCM and LCNRV may be applied by individual products, by product category or by total inventory. 2. A firm that wants to minimize the negative impact of inventory write-down on net income should apply LCM or LCNRV by individual products. 3. If inventory write-down is usual and not substantial, a firm should debit "Loss on inventory write-down” and credit "Inventory". 4. LCM and LCNRV applied by total inventory will result in higher value of inventory and lower inventory write-down than by individual products, by product category. 5. If inventory write-down is unusual and substantial, a firm should debit "Cost of good sold" and credit "Inventory".arrow_forwardWhich of the following statements about receivables turnover is false? Receivables turnover measures the efficiency of the firm in managing and selling inventory Receivables turnover measures the liquidity of the firm's receivables Receivables turnover is calculated with revenue in the numerator A low receivables turnover indicates efficient receivables managementarrow_forward1. If the inventory account at the end of the year is understated, the effect will be to a.overstate the gross profit on sales. b.understate the net purchases. c. overstate the cost of goods sold. d.overstate the goods available for sale 2. Which one among the following statements is not a characteristic of the integral view of presenting interim financial statements? a.It is the more acceptable view. b.Each interim period is recognized as a separate accounting period, regardless of the length of time involved. c. Each interim period is a part of the annual period. d.The revenues and expenses for the annual period are allocated among interim periods 3. What is correct concerning the 75% overall size test for operating segments? a. The total external and internal revenue of all reportable segments is 75% or more of the entity’s external revenue. b. The total external revenue of all reportable segments is 75% or more of the entity’s external and internal revenue. c. The total external…arrow_forward
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