Identify Whether the Following Statements Could Result in Actionable Fraud

question 53

Essay

Identify whether the following statements could result in actionable fraud and why or why not.
a. A statement by an art dealer to a potential buyer, "I think this painting is underpriced because the artist is now gaining national recognition."
b. A vacuum cleaner salesperson's statement, "This machine is the best available for the cost."
c. A city councilman's statement to a fellow councilman that, "If we vote for that action, the resulting consolidation will be illegal."

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Definitions:

Periodic Inventory System

A method of inventory valuation for financial reporting purposes where a physical count of the inventory is taken at specified intervals.

Purchase Account

An account used in accounting to record the total purchases of goods and services by a company.

Inventory Account

An account used to record the value of inventory held by a company, including raw materials, work-in-progress, and finished goods.

Cost of Goods Available

The total cost of goods a company has to sell during a specific period, calculated by adding the beginning inventory to the cost of goods purchased.