FORENSIC ACCOUNTING CONSULTING ENGAGEMENT

You have been retained by the law firm of Thompson Associates. Thompson Associates have been retained by Jones Manufacturing Company in a case involving a suspected kickback by a purchasing employee James Conroy.

Conroy is suspected of accepting kickbacks from an employee of Harrison Sheet Metal Company. Conroy has denied the charges.

Thompson Associates filed a civil action and subpoenaed Conroys books and records, including bank statements. The following information for the year 2016 was obtained:

Beginning bank balance January 1, 2016 $3,400

Ending bank balance December 31, 2016 $2,000

Gross salary $3,700 per month, with a net of $3,000

House payment $1,400 per month

Car payment $2,441 per month on a new Cadillac

Paid a total of $8,450 toward a new Maxima (including a $5,000 down payment).

Paid $5,500 on AVequipment.

Household living expenses (food etc.) estimated at $900 per month (food etc.)

Required:

Calculate the understatement of income for the year 2016 if any, using the Expenditure Method. Explain your conclusion in one or two sentences.