Worldcom Case Essay

726 words - 3 pages

a- i) According to SCON 6 article 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Assets has three characteristics: it embodies a probable future benefit that involves a capacity or in combination with other assets, to contribute directly or indirectly to future net cash inflows, a particular entity can obtain the benefit and control others’ access to it and the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred.
Future economic benefit is the essence of an asset (paragraphs 27–31). An asset has the capacity to serve the entity by being ...view middle of the document...

Because accounts payable and accrued line costs are journalized in the same account. So, we cannot know whether other transactions journalized by accounts payable or not. In the cash flow statement, we cannot see the cash flow by line cost expenses separately. It must be under the accounts payable and other current liabilities. Therefore, we assume that all line costs are journalized by accounts payable and accrued line costs account.
  | Debit | Credit |
Line costs expense | $ 14,739 |   |
Accounts payable and accrued line costs |   | $ 14,739 |

WorldCom paid outside service providers to carry some parts of its calls and to carry its customers’ calls on those lines. These costs were fixed monthly payments for the use of lines, regardless of whether the WorldCom or its customers used those lines or not.
e- In the case, line costs are capitalized. Capitalized expenditures are booked as assets. In the balance sheet of WorldCom, capitalized line costs must be seen under the transmission equipment account. Journal entry related to purchase may be as following, noting that if the item was acquired on account, and then the credit would go towards an account payable:

  | Debit |...

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