Refer to the annual report of MCI in Appendix C and answer the following questions.

a. What is the major fixed asset category for MCI? What percent of MCI’s total assets come from this category?

b. MCI’s annual report mentions SOP (Statement of Position) 93-7 “Reporting on Advertising Costs.” What does this statement say about how advertising costs should be accounted for, and how does it affect MCI?

c. How large is MCI’s depreciation expense in absolute size and as a percent of total operat¬ ing costs? How much did it increase during 1994, and why did it increase by so much? What method of depreciation does MCI use for its communication system, and what use¬ ful life estimates are used? Why are depreciation and amortization added back to net income in the “reconciliation of net income to cash from operating activities,” but not included in the “Operating activities” section of the statement of cash flows?

d. How much cash did MCI invest in its communication system in 1994, and how was this investment funded? How much does MCI intend to spend in 1995 on capital expenditures, and where will the money come from?

e. What does the “Construction in progress” account represent, and what costs are contained in the “Communication systems” accounts? By how much did interest expense decrease in 1994, and why?

f. How does MCI handle maintenance and repair costs? g. (Appendix) How large is the goodwill account in absolute size and as a percent of total assets? How much amortization was recognized on goodwill in 1994, and how much good¬ will was recognized on acquisitions during 1994? Over what period of time does MCI amortize its goodwill ?