FRAUDULENT FINANCIAL STATEMENTS $($LARSEN CONVENIENCE STORE$).$ Excercise$2.$ Background Three months before Tonya Larsen walked out of Anderson Internal Medicine, a suspicious incendiary fire took place at her husband's convenience store in Canton, Georgia. As with most casualty claims, the examination of the claim takes months to complete as the company files a proof of loss and provides requested documentation, fraud examiners prepare business interruption calculations, and the attorney prepares for and then takes the insured's examination under oath $($EUO$).$ Under the standard insurance contract, the insured $($Greg Larsen$)$ must $(1)$ provide requested financial documents and $(2)$ submit to a EUO by an attorney hired by the insurance company. If the insured does not, he$/$she will not be paid for their loss. The fire started at Larsen Convenience Store in Canton, Georgia, around midnight on December $31,2015,$ and completely burned all of the structure and contents to the ground. Agents from the State Fire Marshal's office and independent cause and origin experts hired by the insurance company conducted a cause and origin investigation of the fire scene and determined that the fire was incendiary $($i$.$e$.,$ intentionally set as opposed to being caused by natural, mechanical, or electrical causes$).$ The deputy fire marshals and experts found four sources of ignition. Georgia Bureau of Investigation chemists analyzed carpet and wood samples identified by arson dogs at the fire scene and found the samples to contain hydrocarbons in the same category as gasoline. Insurance company special agents also asked Greg Larsen the following questions: her than prior years. Larsen also stated that he rented the building from J$.$ L$.$ Jensen LLC for $$1,000$ a month and had $24$ months left on his lease. Larsen told the agents that surely a pyromaniac or someone with a grudge lit the fire. Because the cause was an incendiary fire, Southern Appalachian Insurance assigned the follow$$up civil investigation to its Special Investigative Unit $($SIU$)$ and expanded the services of Alexander Z$.$ Boone to include the casualty loss claim. On March $18,2016,$ Greg Larsen filed the proof of loss with Southern Appalachian Insurance for the loss of his inventory, shelving, and leasehold improvements and business interruption $($lost net profits and continuing expenses$).$ As requested by the attorney, Greg Larsen also provided financial records, including the $2013,2014,$ and $2015$ federal income tax returns and January $7,2014,2015,$ and $2016$ SBA personal financial statements filed with Sharptop Bank, and a physical inventory he took on October $31,2015.$ The $2015$ federal income tax return shows that Greg Larsen had his best year ever, having net income totaling $$130,458.$ With such a great net income, Attorney Boone thought that Greg Larsen had no financial motive to burn his store. Thus far, the SIU special agents found: Greg LarseInput information from the SBA Personal Financial Statements given to Sharptop Bank into a spreadsheet. Separate personal items $($e$.$g$.,$ residence$)$ from business items $($e$.$g$.,$ inventory$).$ Calculate common$$sized percentages $($divide each number by gross receipts for income statement items and total assets for balance sheet items for that particular year$).$ Review the dollars horizontally across the three years and vertically down each year and identify any material irregularities. Review the percentages horizontally across the three years and vertically down each year and identify any material irregularities. Trace business items $($e$.$g$.,$ accounts payable$)$ to information provided by suppliers $($e$.$g$.,$ fuel, groceries, beverage, tobacco, and print media sales summaries$).$ Calculate any differences. Compare the reported inventory to the income tax returns and proof of loss $($e$.$g$.,$ ending inventory$).$ Calculate any differences. If the tax return or insurance claim is misstated, did Greg Larsen commit some form of financial statement fraud? What accuracy certifications on the tax return and bank financial statement address providing materially inaccurate information? Was Larsen Convenience solvent on January $7,2016?$ Solvency is defined three ways: $($a$)$ having more assets $($particularly current assets$)$ than liabilities $($particularly current liabilities$),$ or $($b$)$ Larsen Convenience cannot pay its debts when the dates come due, or $($c$)$ both $($a$)$ and $($b$).$ How does Greg Larsen's business solvency impact his wife Tonya Larsen?