13 - Chapter 13 Liability Asset and Inadequate Disclosure...

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Chapter 13 Liability, Asset, and Inadequate Disclosure Frauds MULTIPLE CHOICE 1. Which of the following is an example of asset overstatement fraud? a. Not recording contingent liabilities b. Under recording debt c. Under recording depreciation expenses d. Improperly expensing costs that should be capitalized e. None of the above ANS: C A: Incorrect; this is an example of an understatement of liability fraud B: Incorrect; this is an example of an understatement of liability fraud C: Correct; this will result in overstated fixed asset accounts D: Incorrect; this will result in the understatement of assets E: Incorrect 2. Fraudsters use all of the following methods to conceal frauds from auditors except : a. Collusion with people outside the company b. Collusion with people inside the company c. Forgery d. Keeping the fraud off the books e. All of the above ANS: E E: Correct 3. In dealing with capitalized costs, you might find deferred charges of interest on the balance sheet. What should you do? a. Assume they are accurately capitalized b. Suspect a fraud may have occurred but try to prove innocence c. Look for ways the company could have accidentally deferred the charges d. Deferred interest charges are perfectly normal on the balance sheet ANS: B A: A is incorrect because you should not assume they are accurately capitalized. These deferred charges of interest don't exist very often on the balance sheet in companies. B: B is correct. C: C is incorrect because the company doesn't accidentally defer interest charges. Interest charges take place in the period in which they occur and are rarely deferred. If they are deferred, it is not usually by accident. D: D is incorrect because these deferred charges of interest are not normally on the balance sheet. These charges should be on the income statement, and if they are on the balance sheet, you should sus- pect guilt until you find out otherwise. 4. Which of the following expenditures would be most suspicious if it were capitalized? a. Equipment purchases b. Computer purchases c. Prepaid expenses d. Salaries for top management ANS: D
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A: Equipment is generally considered an asset B: Similar to above, computers could be considered assets C: Though payment for expenses, when paid before the expenses are incurred, pre-paids are con- sidered assets D: Salaries, regardless for who, are generally considered expenses in the period incurred 5. Which of the following is not used to track changes in fixed asset account balances? a. Sequential acid ratio testing b. Horizontal analysis c. Cash flow statement analysis d. Period-to-period comparisons of account balances ANS: A Correct 6. Which of the following ratios will increase in a liability fraud? a.
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This note was uploaded on 01/31/2011 for the course ACCT 345 taught by Professor N/a during the Spring '10 term at Mountain State.

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13 - Chapter 13 Liability Asset and Inadequate Disclosure...

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