Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

WorldCom, Inc. improperly capitalized $3.8 billion dollars of expense from January 1, 2001, through the first quarter of 2002 ($3.04 billion occurred in 2001). Its

image text in transcribed
WorldCom, Inc. improperly capitalized $3.8 billion dollars of expense from January 1, 2001, through the first quarter of 2002 ($3.04 billion occurred in 2001). Its balance sheets for the years ending December 31, 2000 and 2001 showed the following selected balances (in millions): 2000 2001 Change Other current assets $2,007 $2,230 $223 Accounts receivable (net of allowance for bad debts of $1,532 in 2000 and $1,086 in 2001) 6,815 5,308 (1,507) Accounts payable 6,022 4,844 (1,178) Other current liabilities 4,005 3,576 (429) On the SCFs (indirect method) for the year ended December 31, 2001, WorldCom showed the following adjustments to reconcile net income to cash flow from operations (I = increase to income and D = decrease to income): Accounts receivable (net) $281 (1) Other current assets 164 (1) Accounts payable and other current liabilities 1,154 (D) Required: a. What effect did WorldCom's misclassification have on cash flows (a) in total and (b) by classification? b. Why is it difficult to accept the effects on cash flow from operations of the working capital items listed above? c. WorldCom's long-term debt went up by approximately $13 billion during 2001. Is it possible that some of WorldCom's current liabilities were reclassified as long-term during 2001? Complete the assignment and submit to Lesson 4 by the end of the week. This assignment is based off the objectives from Chapter 13. Please make sure that you read and review the Chapter 13 reading, Self-study problems and other textbook material

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider

28th Edition

1337902683, 978-1337902687

More Books

Students also viewed these Accounting questions

Question

What is the purpose of the priming read?

Answered: 1 week ago

Question

1. What does this mean for me?

Answered: 1 week ago