11.1 Learning Objective 11-1
1) The revenue recognition principle requires that sales revenues be recognized when it is earned.
2) Recognizing revenue before it is earned is a major source of financial statement fraud.
3) Financial statement fraud does not include the improper recognition of expenses.
4) If net sales are $1,200,000 and cost of goods sold is $300,000, gross profit is $900,000.
5) Gross profit percentage is calculated by dividing cost of goods sold by net sales.
6) The purpose of channel stuffing is to increase revenues.
7) Roughly half of all financial statement frauds over the past two decades have involved:
A) improper expense recognition.
B) improper revenue recognition.
C) improper asset recognition.
D) improper liability recognition.
8) A type of financial statement fraud that is accomplished by shipping more to customers than they ordered, with the expectation that they may return some or all of the items is called:
A) improper asset recognition.
B) improper expense recognition.
C) channel stuffing.
D) cooking the books.
9) Examples of fraud involving improper revenue recognition include:
A) recording revenue before performing the services required.
B) channel stuffing.
C) sales to nonexistent customers.
D) all of the above
10) Steadily decreasing cost of goods sold as a percentage of net sales is a sign of:
A) increasing earnings quality.
B) decreasing earnings quality.
C) financial statement fraud involving expense recognition.
D) financial statement fraud involving revenue recognition.