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Financial & Managerial Accounting
Found in: Page 30
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

The fraud triangle asserts that the following three factors must exist for a person to commit fraud:

A. Opportunity B. Pressure C. Rationalization Identify the fraud risk factor (A, B, or C) in each of the following situations:

1. The business has no cameras or security devices at its warehouse.

2. Managers are expected to grow business or be fired.

3. A worker sees other employees regularly take inventory for personal use.

4. No one matches the cash in the register to receipts when shifts end.

5. Officers are expected to show rising income or risk dismissal.

6. A worker feels that fellow employees are not honest.

Fraud triangle comprises of three motives of a person who commits fraud, and the situations are matched with the relevant factors.

See the step by step solution

Step by Step Solution

Step 1: Definition of the fraud triangle

Fraud triangle is defined as the framework used in auditing which explains the various reasons behind a person’s decision to commit fraud.

Step 2: Matching of factors with the situations

Situations

Factors

1.

Opportunity

2.

Pressure

3.

Pressure

4.

Opportunity

5.

Pressure

6.

Rationalization

Most popular questions for Business-studies Textbooks

Rivera Roofing Company, owned by Reyna Rivera, began operations in July and completed these transactions during that first month of operations.

July 1 Reyna Rivera invested $80,000 cash in the company in exchange for its common stock.

2 The company rented office space and paid $700 cash for the July rent.

3 The company purchased roofing equipment for $5,000 by paying $1,000 cash and agreeing to pay the $4,000 balance in 30 days.

6 The company purchased office supplies for $600 cash.

8 The company completed work for a customer and immediately collected $7,600 cash for the work.

10 The company purchased $2,300 of office equipment on credit.

15 The company completed work for a customer on credit in the amount of $8,200.

17 The company purchased $3,100 of office supplies on credit.

23 The company paid $2,300 cash for the office equipment purchased on July 10.

25 The company billed a customer $5,000 for work completed; the balance is due in 30 days.

28 The company received $8,200 cash for the work completed on July 15.

30 The company paid an assistant’s salary of $1,560 cash for this month.

31 The company paid $295 cash for this month’s utility bill.

31 The company paid $1,800 cash in dividends to the owner (sole shareholder).

Required Analysis Component 4. Assume that the $5,000 purchase of roofing equipment on July 3 was financed from an owner investment of another $5,000 cash in the business in exchange for more common stock (instead of the purchase conditions described in the transaction above). Compute the dollar effect of this change on the month-end amounts for (a) total assets, (b) total liabilities, and (c) total equity.

Sanyu Sony started a new business and completed these transactions during December.

Dec. 1 Sanyu Sony transferred $65000 cash from a personal savings account to a checking account in the name of Sony Electric in exchange for its common stock.

2 The company rented office space and paid $1000 cash for the December rent.

3 The company purchased $13000 of electrical equipment by paying $4800 cash and agreeing to pay the $8200 balance in 30 days.

5 The company purchased office supplies by paying $800 cash.

6 The company completed electrical work and immediately collected $1200 cash for these services.

8 The company purchased $2530 of office equipment on credit.

15 The company completed electrical work on credit in the amount of $5000.

18 The company purchased $350 of office supplies on credit.

20 The company paid $2530 cash for the office equipment purchased on December 8.

24 The company billed a client $900 for electrical work completed; the balance is due in 30 days.

28 The company received $5000 cash for the work completed on December 15.

29 The company paid the assistant’s salary of $1400 cash for this month.

30 The company paid $540 cash for this month’s utility bill.

31 The company paid $950 cash in dividends to the owner (sole shareholder).

Required Analysis Component 4. Assume that the owner investment transaction on December 1 was $49,000 cash instead of $65,000 and that Sony Electric obtained another $16,000 in cash by borrowing it from a bank. Compute the dollar effect of this change on the month-end amounts for (a) total assets, (b) total liabilities, and (c) total equity.

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