QUESTIONMar 02, 2019In your Fraud Examination Casebook with Documents textbook, read Case 1: Fraudulent Financial Statements (pp. 5-19). Perform Exercise 1 – Fraudulent Financial Statements (Larsen Co
1-5 REVIEW QUESTIONS—FRAUDULENT FINANCIAL STATEMENTS (LARSEN CONVENIENCE STORE)
In the case scenario, Greg Larsen lost a wrongful death lawsuit for killing his nephew and is required to pay $500,000. The Georgia Supreme Court denied certiorari in May 2015 to hear an appeal to overturn the appellate court's affirmation of the lower court decision. When should the $500,000 judgment be shown on Larsen's personal financial statements?
Subsequent to September 2013, when the state court judge handed down his decision.
After October 2014, when the appellate court affirmed the lower court.
Subsequent to May 2015, when the Georgia Supreme Court denied certiorari.
He should have listed the $500,000 as a debt on all personal financial statements filed after September 2013.
Which types of financial statements do not have certifications about the accuracy of information listed on or submitted with the financial statements?
Income tax forms (e.g., IRS Forms 1040, 1065, and 1120)
Unaudited financial statements
Credit applications or financial statements given to financial institutions
Sworn statements in proof of loss submitted to insurance companies
In calculating common‐sized ratios in a vertical and horizontal analysis, what is the base for calculating common‐sized ratios for the balance sheet?
Total assets
Gross receipts
Total liabilities
Retained earnings
When compared to prior years' income statements (IRS Schedules C), the IRS Schedule C for the year ending 2015 shows net profit (and associated income taxes on the net profit) that far exceed prior years. In short, Greg Larsen had his best year yet. Based on that net profit and associated income taxes, you:
Do not have to further investigate his finances because only a fool would overstate his/her net income and pay more income taxes than required.
Should investigate Greg Larsen's finances further because his net income may be overstated (net income is easily overstated in a number of ways including overstating ending inventory, which understates cost of goods sold and overstates gross income and net income).
Need to investigate further because Greg Larsen's primary suppliers made him sign promissory notes for unpaid balances.
Both B and C.
In calculating common‐sized ratios in a vertical and horizontal analysis, what is the base for calculating common‐sized ratios for the income statement?
Gross receipts
Total assets
Total liabilities
Retained earnings
