Which of the following is an example of a common type of financial reporting fraud?
A)Capitalizing major overhauls to operating equipment.
B)Deferring service revenue until it is delivered to customers.
C)Recording sales for inventory sold with the right to return.
D)Excluding a contingent liability that has been settled.

Question

Quizplus · Accepted Answer

Recording sales for inventory sold with the right to return is a common type of financial reporting fraud known as channel stuffing. The company records the sale immediately, artificially inflating its revenue, even though the customer may return the product later. This distorts the company's financial position and misleads investors.

Which of the Following Is an Example of a Common