Errors in financial statements, Financial Accounting

Errors in Financial Statements

The following financial statements are available for Sherwood Real Estate Company:

Balance Sheet
Assets Liabilities
Cash . . . . . . . . . . . . . . $ 1,300 Accounts payable . . . . . . . . $ 100,000
Receivable from sale of
real estate. . . . . . . . . 5,000,000 Mortgage payable. . . . . . . .
Total liabilities . . . . . . . . . . . 6,000,000
$ 6,100,000
Interest receivable*. . . . 180,000
Real estate properties . . 6,000,000
Stockholders' Equity
Capital stock. . . . . . . . . . . . $ 10,000
Retained earnings . . . . . . . . 5,071,300
Total stockholders' equity. . . 5,081,300
Total assets . . . . . . . . . $11,181,300 Total liabilities and
stockholders' equity. . . . . $11,181,300
*Interest Receivable applies to Receivable from sale of real estate.
Income Statement
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200,000
Interest income*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,380,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,180,000
*Interest Income applies to Receivable from sale of real estate.

Sherwood Company is using these financial statements to entice investors to buy stock in the
company. However, a recent FBI investigation revealed that the sale of real estate was a fabricated
transaction with a fictitious company that was recorded to make the financial statements look bet-
ter. The sales price was $5,000,000 with a zero cash down payment and a $5,000,000 receivable.
Prepare financial statements for Sherwood Company showing what its total assets, liabilities, stock-
holders' equity, and income really are with the sale of real estate removed.

Appropriateness of Accounting Rules

In the early 1990s, the top executive of a large oil refining company was convicted of financial state-
ment fraud. One of the issues in the case involved the way the company accounted for its oil inventories. The company would purchase crude oil from exploration companies and then process the
oil into finished oil products, like jet fuel or diesel fuel. Because there was a ready market for these finished products, as soon as the company purchased the crude oil, it would value its oil inventory at the selling prices of the finished products less the cost to refine the oil. This type of accounting was questioned because it allowed the company to recognize profit before the actual sale (and even
refining) of the oil. Nevertheless, one of the large CPA firms attested to the use of this method.

If you were the judge in this case, would you be critical of this accounting practice?

 

Posted Date: 2/21/2014 12:07:55 AM | Location : United States







Related Discussions:- Errors in financial statements, Assignment Help, Ask Question on Errors in financial statements, Get Answer, Expert's Help, Errors in financial statements Discussions

Write discussion on Errors in financial statements
Your posts are moderated
Related Questions
Q. What is Demands For Grants? The budget proposals of the expenditures to be met out from the "Consolidated fund of India" should be presented in the form of Demands for Grant

Q. Explain Productivity linked bonus? The grant of productivity-linked bonus is intended to provide substantial motivation towards achieving higher productivity by way of incre

This is a research case.  You must complete this assignment INDIVIDUALLY.  This means no help from other students.  You may consult Dr. Eldridge while you are working on this case.

Question: Vinak Ltd., which produces three products provides you the following data for 2008-2009.

what if 50% of customers who switch from pisa pizza who switch from original pizza to healthier pizza then switch to another brand from healthier pizza.

Individual taxpayers who don't itemize their deductions are entitled to a standard deduction amount by which to decrease ADJUSTED GROSS INCOME in arriving at taxable income. Amount

Dawn's new car has a FMV of $20,000 and it weighs 3,000 pounds. The county also assessed a property tax on the car. The tax was 2% of its FMV and $10 per hundred weight. The car is

Dillings Ltd is a wholesaler and distributor of catering of office equipment. The following list of balances was extracted from its books at 31 March 2004: 1428_Prepare the Income

Which of the following statements is FALSE of Just-In-Time (JIT) manufacturing systems? Answer Demand pull means a closer relationship with the customer. The power of supp