Applications of the Sarbanes-Oxley Act The CFO of the Bancor Microscope Corporation intentionally misclassified a downstream transportation expense in the amount of $50,000,000 as a product cost in an accounting period when the company made 10,000 microscopes and sold 8,000 microscopes. Bancor rewards its officers with bonuses that are based on net earnings.

Required

a. Indicate whether the elements on the financial statements (i.e., assets, liabilities, equity, revenue, expense, net income, and cash flow) would be overstated or understated as a result of the misclassification of the upstream research and development expense. Determine the amount of the overstatement or understatement for each element.

b. Based on the provisions of the Sarbanes-Oxley Act, what is the maximum penalty that the CFO could face for deliberately missrepresenting the financial statements?