You are a forensic accountant hired by a law firm to investigate a case of suspected embezzlement
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Question:
You are a forensic accountant hired by a law firm to investigate a case of suspected embezzlement in a company. You have been provided with the following information for the past two years:
| Account | 2019 | 2020 |
|---|---|---|
| Cash | $300,000 | $450,000 |
| Accounts Receivable | $200,000 | $250,000 |
| Inventory | $400,000 | $300,000 |
| Accounts Payable | $150,000 | $180,000 |
| Notes Payable | $100,000 | $150,000 |
| Common Stock | $100,000 | $100,000 |
| Retained Earnings | $350,000 | $320,000 |
Your investigation has revealed that the company's controller has been manipulating the financial statements by overstating revenues and understating expenses in 2020.
a) Calculate the company's current ratio and quick ratio for 2019 and 2020. (8 marks)
b) Calculate the percentage increase in revenues and net income from 2019 to 2020. (6 marks)
c) Based on your analysis, what is your conclusion regarding the suspected embezzlement? (6 marks)
Expert Answer:
The detailed answer for the above question is provided below a The current ratio and quick ratio can be calculated using the following formulas Current Ratio Current Assets Current Liabilities Quick R... View the full answer
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