WGU C254 Topic 7 Study Guide Exam Questions and Actual Answers.

With asset-based financial statement frauds, assets are most often: - Answer Overstated Which of the following is a way to commit asset fraud? a. Overstating fixed assets b. Under-recording payroll taxes c. Over-recording contingent liabilities d. Recording sales discounts too high - Answer Overstating fixed assets The WorldCom fraud was primarily an example of which type of fraud? - Answer Overstatement of asset fraud Which of the following is not a common way in which companies overstate their assets during a merger or acquisition? a. Inappropriately use market values instead of book values. b. Improperly allocate book values to assets. c. Under-record various liabilities. - Answer Under-record various liabilities. Which of the following ratios is not useful in detecting overstatement of asset fraud? a. Individual fixed asset account balances/Total fixed assets. b. Fixed asset/Total current liabilities. c. Total deferred charges/Total assets. d. Deferred charge write-offs (amortization)/Deferred charge balance. - Answer Fixed asset/Total current liabilities. Which of the following is not a common way to overstate fixed assets (property, plant, and equipment)? a. Inflated amounts are recorded in non-arm's-length purchase transactions. b. Assets are not written down to their appropriate book, market, or residual values. c. Allowance for doubtful accounts is recorded too high. d. Assets that simply do not exist are fictitiously recorded in the financial statement accounts. - Answer Allowance for doubtful accounts is recorded too high. If the allowance for doubtful accounts is recorded too high, the company will appear less profitable than it actually is. As a result, this is not a common method used to manipulate the financial statements.