Detecting Accounting Fraud 1st Edition by Cecil Jackson

Exercise 9

Crafty Company manufactures and sells printers. On the last day of the first quarter of the year, Crafty contrives with Tricky Company to sell 100 printers to Tricky Company for $1,000 each. In terms of Crafty's agreement with Tricky, Tricky will sell those 100 printers back to Crafty at the same price of $1,000 each in the second quarter of the year. The cost of each printer that Crafty manufactures is $600. Crafty allocates the full cost of the printers that it purchases from Tricky to inventory.
Examine the following extract from Crafty's income statement, excluding the contrived round-trip transaction:
Assume that Crafty Company goes ahead with the contrived round-trip transaction with Tricky Company. Prepare Crafty's income statement for the first quarter with the round-trip transaction included. Ignore taxes.