The following are activities that occurred at Franklin Manufacturing, a nonpublic company.

1. Franklins accountant did not record checks written in the last few days of the year until the next accounting period to avoid a negative cash balance in the financial statements.

2. Franklins controller prepared and mailed a check to a vendor for a carload of material that was not received. The vendors chief accountant, who is a friend of Franklins controller, mailed a vendors invoice to Franklin, and the controller prepared a receiving report. The vendors chief accountant deposited the check in an account he had set up with a name almost identical to the vendors.

3. The accountant recorded cash received in the first few days of the next accounting period in the current accounting period to avoid a negative cash balance.

4. Discounts on checks to Franklins largest vendor are never taken, even though the bills are paid before the discount period expires. The president of the vendors company provides free use of his ski lodge to the accountant who processes the checks in exchange for the lost discounts.

5. Franklin shipped and billed goods to a customer in New York on December 23, and the sale was recorded on December 24, with the understanding that the goods will be returned on January 31 for a full refund plus a 5 percent handling fee.

6. Franklins factory superintendent routinely takes scrap metal home in his pickup and sells it to a scrap dealer to make a few extra dollars.

*AICPA adapted.

7. Franklins management decided not to include a footnote about a material uninsured lawsuit against the company on the grounds that the primary user of the statements, a small local bank, will probably not understand the footnote anyway.

Required

a. Identify which of these activities are frauds.

b. For each fraud, state whether it is a misappropriation of assets or fraudulent financial reporting.