A company's accounts payable balance is reported as $500,000 in its financial statements. However, upon investigation, it is found that $50,000 of the accounts payable balance relates to fraudulent invoices that were paid to a fictitious vendor by the company's accounts payable clerk. The fraud was carried out over a period of 12 months and the company's accounts payable balance remained constant during this period.

Assuming that the accounts payable balance was intentionally overstated, answer the following questions:

a) What is the percentage overstatement of the accounts payable balance?
b) What is the impact of the fraudulent invoices on the company's reported net income before taxes for the 12-month period?
c) If the fraud had not been detected and had continued for another 12 months, what would be the impact on the company's reported net income before taxes for the second 12-month period?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a The percentage overstatement of the accounts payable balance can be calculated as a percentage of the actual accounts payable balance Per... View the full answer