3.The line costs that WorldCom capitalized were ongoing, operating expenses that required WorldCom to recognize immediately. Capital expenditures appear as assets on the Company's balance sheet, and when put in service, are depreciated gradually over time. In its public filings, WorldCom consistently emphasized throughout 2001 that its line cost Expense/Revenue(E/R)ratio stayed the same-about 42%-quarter after quarter. Had it not capitalized line costs,WorldCom's line cost E/R ratio would have been much higher, typically exceeding50%.

Required:Bycapitalizing line cost, how did WorldCom manipulate the financials?

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