On april 3 20x2 steele relying on the financial statements, Ask an Expert

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Steele, Inc. wanted to purchase Kalp's distribution business. On March 15, 20X2, Kalp provided Steele with copies of audited financial statements for the period ended December 31, 20X1. The financial statements reflected inventory in the amount of $1.2 million. On March 29, 20X2, Kalp discovered that the December 31 inventory was overstated by at least $400,000. On April 3, 20X2, Steele, relying on the financial statements, purchased all of Kalp's business. On April 29, 20X2, Steele discovered the inventory overstatement. Steele sued Kalp for fraud. Which of the following statements is true?

A. Steele will lose because Kalp was unaware that the inventory valuation was incorrect at the time the financial statements were provided to Steele.

B. Steele will prevail but will not be able to sue for damages.

C. Steele will lose because it should not have relied on the inventory valuation in the financial statements.

D. Steele will prevail because Kalp had a duty to disclose that the inventory value was overstated.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M985301

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