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Ebook Financial accounting (2nd edition): Part 2

(BQ) Part 2 book "Financial accounting" has contents: Long-Term assets, current liabilities, long term liabilities, stockholders’ equity, statement of cash flows, financial statement analysis. | Confirming Pages 7 Find more at www.downloadslide.com CHAPTER Long-Term Assets Learning Objectives AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO: ■ LO1 Identify and record the major types of property, plant, and equipment. ■ LO2 Identify and record the major types of intangible assets. ■ LO3 Discuss the accounting treatment of expenditures after acquisition. ■ LO4 Calculate depreciation of property, plant, and equipment. ■ LO5 Calculate amortization of intangible assets. ■ LO6 Account for the disposal of long-term assets. Analysis ■ LO7 Describe the relationship among return on assets, profit margin, and asset turnover. Appendix ■ LO8 Identify impairment situations and describe the two-step impairment process. 318 spi10823_ch07_318-367.indd 318 7/29/10 11:36 AM Confirming Pages Find more at www.downloadslide.com WORLDCOM: EXPENSES CALLED ASSETS Feature Story WorldCom was the parent company of MCI and recognized as the leading telecommunications company in North America. Then in 2002, a routine internal audit uncovered massive accounting fraud. The firm had recorded assets in the balance sheet that should have been recorded as expenses in the income statement. Although this kind of fraudulent reporting was not new, the sheer volume of the fraud set new records. By failing to record expenses, WorldCom overstated its income and assets by about $11 billion (not $11 million, but $11 billion!). Estimates of investor losses from the resulting bankruptcy exceeded $100 billion. How was the fraud accomplished? When WorldCom used the telecommunication lines of another company, it paid a fee. This fee is part of normal operating costs, and it should have been recorded as an expense of the current period, to properly match the expense with the revenues it helped to generate. Instead, WorldCom recorded these operating expenses as long-term assets in the balance sheet. Failure to report these operating expenses caused net income to be overstated by billions;