Maple Company Has an Increase in Purchases from Specific Vendors

question 35

Multiple Choice

Maple Company has an increase in purchases from specific vendors and an increase in raw materials inventory for the items purchased from these vendors. Sales for the company have not increased and are not forecast to increase. From this information an auditor might suspect

• A)an increase in obsolete raw material inventory.
• B)theft of raw material inventory.
• C)kickbacks from vendors.
• D)poor security over raw material inventory.

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Definitions:

Incentives

Incentives are rewards or penalties that motivate individuals or entities to act in a certain way, often used to influence economic behavior and decision-making.

Ability-to-pay Principle

A tax design principle that suggests taxes should be levied according to an individual's or entity's ability to bear them.

Regressive Tax

A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

Regressive Income Tax

A tax system where the tax rate decreases as the taxable amount increases, placing a higher relative burden on low-income earners.