Essay on Behind Closed Doors at WorldCom

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Behind Closed Doors at WorldCom: 2001 1. Two General Accounting employees—Dan Renfroe and Angela Walter—made journal entries in the amount of $150 million and $171 million, respectively, without detailed support. It was noted that this was not out of the ordinary at WorldCom. In your opinion, was this a proper accounting practice? Explain. Though this may not be out of the ordinary for WorldCom, this is not a correct accounting practice. The way the entries were made does not comply with the proper account practice according to GAAP. Detailed support is an important part of providing support to a journal entry and it explains the reason or purpose as to why the journal entry was created. 2. Based on GAPP, describe the propriety or…show more content…
6 which states, “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events”. However, as per GAAP, line costs must be reported as an expense in the company’s income statement as these are fundamentally, operating expenses. It was put in the Balance Sheet as an accrued liability rather than in the income statement as an accrued expense. This resulted in falsely projecting income and profits; and concealing huge losses by wrongly capitalizing the line costs. 4. 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. This is not in compliance with the provisions of GAAP or SAB 101. Revenue should not be recognized until it is realized or becomes realizable and earned. If we followed this statement the company did not have realized revenue Furthermore, the penalty payments if enforced could not be paid till the year 2005 as stated in the contract. Also, the journal entry resulted in recognizing revenue when it was not earned or realized and thus, overstated the profits. 5. Why do you think the professionals in this
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