ABCDE Technologies, Inc., designs, manufactures and markets an extensive line of PC cards. The...

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ABCDE Technologies, Inc., designs, manufactures and markets an extensive line of PC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competition.

In fact, many OEM companies ran into financial difficulty in 2008 because of fierce competition. The following tables are part of the company's financial statements for 20x1 and 20x2:

ABCDE TECHNOLOGIES, INC., CONSOLIDATED
BALANCE SHEET (PARTIAL) - UNAUDITED
DECEMBER 31, 20X1 DECEMBER 31, 20X2
Assets:
Current Assets:
  Cash and cash equivalents $6,181,520 $970,446
  Available - for - sales securities 4,932,763
Accounts receivable, net of allowance for doubtful accounts of $148,300 and $139,200 at December 31, 20X1, respectively
  Inventories 18,229,317 8,609,492
  Other current assets 18,229,317 8,609,492
__________ __________
Total current assets $60,165,148 $22,121,600
========== ==========

ABCDE TECHNOLOGIES, INC., CONSOLIDATED INCOME STATEMENT (PARTIAL) - UNAUDITED
20X1 20X2 20X3
Sales $37,847,681 $12,445,015 $8,213,236
Cost of goods sold 15,895,741 6,832,927 4,523,186
__________ __________ __________
Gross margin $21,951,940 $5,612,088 $3,690,050
                                                                           ========== ========== ==========

1. Determine the red flags that exist in these financial statements. Describe the scenarios that might contain these symptoms.

2. Based upon the red flags and scenarios you identified, determine what types of financial statement fraud the company may be involved in.

Financial Statements:

Financial statements are the foundation of a company. Financial statements must be accurate, reliable, and timely prepared to make informed business decisions.

Answer and Explanation: 1

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Financial statements are prepared periodically as a communication device to report the financial results of an entities operations. The financial...

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What Are Financial Statements? - Definition, Purpose & Importance

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Learn about the types and importance of financial statements. See the financial statement definition, and study the purpose of financial statements.


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