3. Tim’s Tasty Tacos offers to buy Mexi-Restaurant Equipment & Supplies Corporation. On June 1, Mexi- Restaurant gives Tim’s copies of Mexi- Restaurant’s financial statements for the previous year. The statements show an inventory of $10 million. On June 15, Mexi-Restaurant discovers that the previous year’s inventory is overstated by $9 million, but does not inform Tim’s. On July 1, Tim’s, relying on the financial statements, buys Mexi-Restaurant. On July 10, Tim’s discovers the inventory overstatement.
- Can Tim’s succeed in a suit against Mexi-Restaurant for fraud?
- If so, what does Tim’s have to prove?
Under what circumstances would the accountant for Mexi-Restaurant face liability for the overstatement on the financial statements?
