Question

Question: Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a current ratio of 1.2 or better. After reviewing the annual reports, the CEO, N. O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, “We’ve decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the adjusting entries as of the current year-end.” Carl made the adjustments even though he doesn’t think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company’s travel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan.

Requirements

Has a fraud occurred? If so, what is the fraud?

Short answer

Answer

No, the business entity has not committed any fraud.

Step-by-step solution

Step-By-Step SolutionStep 1: Definition of Fraud

Unethical action or activities done to generate some personal financial gain is known as fraud. Fraud is considered an illegal activity and is punishable by law.

Fraud Occurred or Not

The business entity has just reclassified its long-term assets into current assets. Such action does not over or understate the assets of the business entity. Therefore, it cannot be said that the business entity has committed fraud.