Access the Wiki Art Gallery (WAG) instructional case in Connect, and read the case in sufficient depth

Question:

Access the Wiki Art Gallery (WAG) instructional case in Connect, and read the case in sufficient depth to answer the following questions.
1. Which of the following statements uses the fraud triangle appropriately when identifying the risks of financial misreporting at Wiki Art Gallery (WAG)?
a. Because Rob prepares WAG's the incentive for misstating the financial results is heightened.
b. Because WAG's are not audited, the opportunity for misstating the financial results is heightened.
c. The risk of financial reporting fraud is heightened because Stephen has shown a tendency to rationalize and conceal misdeeds.
d. The pending sale of WAG increases the opportunity for misstating the financial results.
2. Which of the following properly calculates and interprets the change in WAG's net profit margin?
a. WAG's net profit margin increased from 0.35% in 2010 to 0.45% in 2011, suggesting an increase in WAG's ability to generate profits from revenues.
b. WAG's net profit margin decreased from 3.5% in 2010 to 0.45% in 2011, suggesting a decrease in WAG's ability to generate profits from revenues.
c. WAG's net profit margin increased from 3.5% in 2010 to 4.5% in 2011, suggesting an increase in WAG's ability to generate profits from revenues.
d. WAG's net profit margin increased from 3.5% in 2010 to 45.0% in 2011, suggesting an increase in WAG's ability to generate profits from revenues.
3. Exhibit 1 of the case indicates that WAG violated its debt-to-assets loan covenant in May 2011. Which of the following events would have increased the risk of violating this loan covenant?
a. The risk of violating the loan covenant would be increased when WAG paid cash to purchase artwork.
b. The risk of violating the loan covenant would be increased when WAG used its cash to pay suppliers on account.
c. The risk of violating the loan covenant would be increased when WAG used its cash to pay dividends to Rob.
d. The risk of violating the loan covenant would be increased when WAG reduced the salary it paid to Rob.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...