A-1. Assets are property owned by an entity that have value and that are held for future economic benefits. The entity obtains the right to control and rep the benefit from the asset after the transaction has already occurred. Expenses are outflows of assets or the liabilities that are incurred that go towards the entity’s ongoing central operations. Expenses are mostly related with cash outflows that have occurred.
A-2. Costs should be capitalized as assets when they still hold economic value. Costs should be expensed when they are completely depreciated and have no more future economic value that can be measured.
B. After their initial capitalization, “costs” become an asset recorded at historical cost, including any major improvements or modifications. In the earlier years, capitalized costs have report a higher net income than it would have had if it expensed the costs. On the balance sheet, a entity that capitalizes its costs reports a higher total assets.
C. On WorldCom’s 12/31/2001 statement of operations they reported line cost of $14,739 (in millions). “Line costs” for WorldCom represented fees that they would pay to third party telecommunication network providers, which gave them the right to access their networks. Line costs are marketing expenses that usually must be charged immediately against income. An exception to this rule is that line cost are allowed to be amortized only if they can be linked directly to specific revenue. Under GAAP line cost must be expensed and may not be capitalized.
JE
D. WorldCom improperly capitalized access charges and transport charges. These costs should have been amortized instead of taking a one-time charge. Yes these cost meet the definition of an asset.
E. JE
F.
G.
H. Management would engage in such deception as, capitalizing costs that are normally immediately expensed because it makes year-end net income appear higher than it actually should be. If net income is higher management...