Use the Net Worth Method to identify potential income from unknown sources in th
ID: 2452332 • Letter: U
Question
Use the Net Worth Method to identify potential income from unknown sources in this situation for BOTH 2003 and 2004:
You receive an anonymous tip that your controller is embezzling assets from your company. You begin your investigation by interviewing several employees in the accounting department, who report no unusual behavior or sudden changes in the suspect’s standard of living. One interviewee does report that the controller has gone on a number of extravagant vacations.
You perform a net worth analysis, based on a search of public records, and find the following information:
2002 2003 2004
Assets
Personal residence 100,000 100,000 100,000
Automobiles 20,000 40,000 90,000
Stocks and bonds 30,000 30,000 30,000
Boat 30,000 30,000
Certificates of deposit 25,000 31,000 60,000
Liabilities
Mortgage balance 90,000 40,000
Auto loan 10,000 5,000
Income
Salary 37,000 45,000 51,000
Other 4,000 4,000 4,000
Expenses
Mortgage payments 6,000 6,000 6,000
Auto loan payments 2,000 2,500 2,500
Other living expenses 15,000 15,000 20,000
Explanation / Answer
OPENING NET WORTH FOR 2003 => 175000 - 100000 => $75000
CLOSING NET WORTH FOR 2003 => 231000 - 45000 => $186000
DIFFERNCE OF NET WORTH => 186000 -75000 => $111000
NOW, ADDING NONDEUCTIBLE EXPENDITURES AND SUBTRACTING NON TAXABLE RECEIPTS
111000 + 15000 - 0 => 126000
POTENTIAL INCOME OF 2003 => $ 126000
FOR 2004
ENDING NET WORTH OF 2004 => 310000
OPENING NET WORTH OF 2004 => 186000
DIFFERENCE => 310000 - 186000 => $124000
NOW, ADDING NONDEUCTIBLE EXPENDITURES AND SUBTRACTING NON TAXABLE RECEIPTS
124000 + 20000 - 0
=> 144000
POTENTIAL INCOME OF 2004 => $144000
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