Miami Company designs, manufactures, and markets an extensive line of PC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competition. In fact, many OEM companies ran into financial difficulty because of fierce competition.

'The following is part of the companys financial statements for 2016 and 2017.

1. Determine the red flags that exist in these financial statements.
2. Describe the scenarios that might contain these symptoms.
3. Based upon the red flags and scenarios you identified, determine what types of financial statement fraud the company may be involved in and explain your reasoning. (Hint: Pay careful attention to cost of goods sold, sales, and allowance for doubtful accounts.)

Consolidated Balance Sheet (Partial) - Unaudited	2017	2016
Assets
Current Assets
Cash and cash equivalents	6,181,420	970,346
Available for sales securities	4,932,663
Accounts receivable, net of allowance for doubtful $148,300 and $139,200 at December 31 2017 and 2016 respectively	12,592,131	3,932,070
Inventories	18,229,217	8,609,392
Other current assets	18,229,217	8,609,392
Total current assets	60,164,648	22,121,200
Consolidated Income Statement (Partial)	2018	2017	2016
Sales	37,847,581	12,444,915	8,213,136
Cost of Goods Sold	15,895,641	6,832,827	4,523,086
Gross Margin	21,951,940	5,612,088	3,690,050

Miami Company designs, manufactures, and markets an extensive line of PC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competition. In fact, many OEM companies ran into financial difficulty because of fierce competition. 'The following is part of the company's financial statements for 2016 and 2017. 1. Determine the red flags that exist in these financial statements. 2. Describe the scenarios that might contain these symptoms. 3. Based upon the red flags and scenarios you identified, determine what types of financial statement fraud the company may be involved in and explain your reasoning. (Hint: Pay careful attention to cost of goods sold, sales, and allowance for doubtful accounts.) Consolidated Balance Sheet (Partial) - Unaudited 2017 2016 Assets Current Assets Cash and cash equivalents 6,181,420 970,346 Available for sales securities 4,932,663 12,592,131 3,932,070 Accounts receivable, net of allowance for doubtful $148,300 and $139,200 at December 31 2017 and 2016 respectively Inventories 18,229,217 8,609,392 Other current assets 18,229,217 8,609,392 Total current assets 60,164,648 22,121,200 Consolidated Income Statement (Partial) 2018 2017 2016 Sales 37,847,581 12,444,915 8,213,136 Cost of Goods Sold 15,895,641 6,832,827 4,523,086 Gross Margin 21,951,940 5,612,088 3,690,050 Miami Company designs, manufactures, and markets an extensive line of PC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competition. In fact, many OEM companies ran into financial difficulty because of fierce competition. 'The following is part of the company's financial statements for 2016 and 2017. 1. Determine the red flags that exist in these financial statements. 2. Describe the scenarios that might contain these symptoms. 3. Based upon the red flags and scenarios you identified, determine what types of financial statement fraud the company may be involved in and explain your reasoning. (Hint: Pay careful attention to cost of goods sold, sales, and allowance for doubtful accounts.) Consolidated Balance Sheet (Partial) - Unaudited 2017 2016 Assets Current Assets Cash and cash equivalents 6,181,420 970,346 Available for sales securities 4,932,663 12,592,131 3,932,070 Accounts receivable, net of allowance for doubtful $148,300 and $139,200 at December 31 2017 and 2016 respectively Inventories 18,229,217 8,609,392 Other current assets 18,229,217 8,609,392 Total current assets 60,164,648 22,121,200 Consolidated Income Statement (Partial) 2018 2017 2016 Sales 37,847,581 12,444,915 8,213,136 Cost of Goods Sold 15,895,641 6,832,827 4,523,086 Gross Margin 21,951,940 5,612,088 3,690,050