Detecting Accounting Fraud 1st Edition by Cecil Jackson

Exercise 31

If a company overstates the reserves of a company that it acquires and increases goodwill by a corresponding amount in the period of the acquisition in order to release the reserves in a later period, which of the following will occur? (a) A decrease in the amount of the group's operating income in its consolidated income statement in the period of the acquisition.
(b) No decrease in operating income, but a decrease in net income in the group's consolidated income statement in the period of the acquisition.
(c) No decrease in operating income and no decrease net income in the period of the acquisition.
(d) An increase net income in the period of the acquisition.