Worldcom Case Response

In 2014, Sedki, Sedki, Strickland concluded that GAAP is complicated for people to use. It provides more than two hundred industry specific rules for different firms to recognize revenue. Therefor there is no effective regulation for people to use when they need to

Consider journal entry that recognized $35 million of revenue in 2001 from the EDS contract based on WorlCom’s expectation that the five-year required cumulative minimum payment would not be met. Based on your own analysis of GAAP, explain the propriety to impropriety of this journal entry.

Fictitious reductions of expenses improve the bottom line on financial statements and can mask true losses and debt. (Crumbley, Heitger and Smith, 2013). An airline has a large fleet of aircraft that require extensive routine maintenance costs. In times of unprofitability, the airline might improve earnings by recording additional upgrades to planes as expenses by deferring losses to future periods. GAAP section 39.200 provides details around how capital assets should be recorded on the balance sheet and the associated depreciation should be recorded (GAAP, 2015).

”Was written by Michael Rapoport on September 29, 2016, in the Wall Street Journal. Recently, Wells Fargo had an accounting scandal with CFO John Stumpf around the problem now is deciding what is ‘material’ and must be disclosed.

There was 2 billion dollars

b. I do not think that the capital of Illinois plant should change its current cost system. The plant is also using the production-run direct labor cost to allocate its overhead costs. However, because the plant produces one product with no customization, with materials purchased from local manufacturers all made by hand (little overhead cost-Exhibit 2) this cost system is effective and should not be changed.

After yesterday’s excitement in Engineering everyone was hoping for a smooth weapons test. Everyone was their station, Lt. Colonel House and Major Tso, as well as Major Wakowski were on the bridge. The PJ’s had finished prepping the drones earlier in the morning and loaded them into the catapult in the landing bay. Major Wakowski was running his last diagnostic’s on the weapons and tracking system to ensure everything was in working order, Elle had already reported that she was able to repair the tampered software in the weapons tracking array. Everything was good to go.

Also, the cost of working capital is not being included; as a result, Trading Profit is not indicating the amount of cash and other current assets being tied up in each particular product line. We think that the opportunity cost of utilizing (tying-up) working capital is not reflected on each individual product lines’ final results, enabling product managers to utilize potentially excessive levels of working capital without poorly affecting their Trading Profit.

Answer: Under LabCo's current Accounting Policy if reliably dependable estimates of total costs to be incurred under a specific contract cannot be made the completed-contract method shall be followed. IFRS does not recognize the completed-contract method, but instead requires the use of the cost recovery method per IAS No. 11. The cost recovery method expenses contract costs as they are incurred, and an offsetting amount of contract

Prior to October 1, 1996, AOL accounted for the cost of direct response advertising as "Deferred Subscriber Acquisition Costs," i.e., it recognized (reported) the costs of mailing out diskettes allowing you to sign-on to AOL for 100 free minutes as an asset on its Balance Sheet. In accounting, we say that the costs were "capitalized," meaning reported on the Balance Sheet as an asset. This is in contrast to the costs being "expensed," flowing to the Income Statement immediately as an expense.

iv. The business customer line? Why? That is, what is the underlying rationale for indirect cost allocation under the old

GAAP is an international convention of good accounting practices. It is based on the following core principles. In certain instances particular types of accountants that deviate from these principles can be held liable.

As explained above, the fraud was implemented by the former CEO Bernard Ebbers and commited by his financial director Scott D. Sullivan. The technique used by Worldcom was pretty simple; indeed, he cooked the books by saving pure operating expenses such as maintenance network in capital expenditure instead of expenses in order to hide its decreasing earnings and to maintain the price of Worldcom’s stock. In summary, certain expenses charged by regional operators to reroute calls were not taken into account. Of "current expenses" (line cost expenses), these charges were recorded in "capital" in total contradiction with GAAP accounting standards.

Essentially, with the current cost system, the managerial analysis is highly flawed due to a lack of crucial in-depth cost information, as indicated by:

Being a large global entity, countertrade is not very evident in the MCIWorldcom financial structure although Worldcom participates in numerous business partner programs. Worldcom provides a service and/or fiber-optic cable and network connectivity in over 45,000 office buildings worldwide. One of the smart business decisions made by leaders at MCIWorldcom provisioned facilities and points of presence (POP) in each of their global locations. All POP is connected to Worldcom's fiber optic backbone and intranet.