The CFO of the Souta Microscope Corporation intentionally misclassified a downstream transportation expense in the amount of $840,000 as a product cost in an accounting period when the company made 20,000 microscopes and sold 14,000 microscopes. Souta rewards its officers with bonuses that are based on net earnings.

a. Indicate whether the elements on the financial statements (i.e., assets, liabilities, equity, revenue, expense, and net income) would be overstated or understated as a result of the misclassification of the upstream research and development expense. Determine the amount of the overstatement or understatement for each element.
b. Based on the provisions of the Sarbanes-Oxley Act, what is the maximum penalty that the CFO could face for deliberately missrepresenting the financial statements?

  • CreatedFebruary 07, 2014
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