A business decides to engage in accounting fraud to improve its profit performance for the year. Of course this is unethical and illegal, but the chief executive of the business is desperate, and the chief accountant agrees to conspire with the chief executive to carry out this accounting fraud. They decide that they can’t manipulate sales revenue for the year, so the accounting fraud has to be done on the expense side of the ledger. The changes in financial condition caused by the actual expenses of the business for the year are given below. How might management go about misstating the expenses in order to boost profit $125,000?
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Condensed Balance Sheet |
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Cash |
–$4,800,000 |
Operating liabilities |
$275,000 |
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Receivables |
Interest-bearing liabilities |
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Inventory |
$50,000.00 |
Owners’ invested capital |
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PP&E, net |
–$400,000 |
Owners’ retained earnings |
–$5,425,000 |
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Assets |
–$5,150,000 |
= |
Liabilities and Owners’ Equity |
–$5,150,000 |