UT Knoxville ACCT 200 - Chapter 7 (22 pages)

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Chapter 7



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Chapter 7

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Pages:
22
School:
University of Tennessee
Course:
Acct 200 - Foundations of Accounting
Foundations of Accounting Documents

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Long Term Assets Fixed Investment and Intangible Chapter 7 A200 Survey of Accounting University of Tennessee 2 Ch 7 Business Expenditures Costs All expenditures are recorded as either Asset on Balance Sheet Expense on Income Statement Capitalize the cost as an asset on the balance sheet if the item will be used in the future to generate revenue Expense the cost on the income statement if the item is used up in the current period to help generate revenue Current assets Long term Assets Fixed PPE Investment Intangible 3 Capitalize costs vs Expense costs Why does it matter The 2001 fraud at WorldCom ultimately topped 11 billion and led to the country s biggest bankruptcy filing in July 2002 Nearly 17 000 employees lost their jobs as a result of the scheme to bury expenses and inflate revenue The accounting fraud at WorldCom amounted to a decision by its chief financial officer Scot Sullivan to categorize as long term investments long term assets money paid to local phone companies to complete phone calls which should have been expenses All told Sullivan capitalized costs from 540 million to 797 million per quarter over five quarters Sullivan and the former controller David Myers were fired for claiming 3 8 billion in regular expenses as capital investments in 2001 Charged with securities fraud conspiracy and other charges they face 65 years in prison A federal judge sentenced former WorldCom Inc chief executive Bernard J Ebbers to 25 years behind bars for his role in the nation s largest accounting fraud the harshest prison term yet to flow from corporate scandals that rocked the stock market in 1999 2002 Forbes com Cheatingculture com Fixed Assets Investments and Intangible Assets Defined Fixed Assets PPE long term tangible assets owned and used by the business and are not offered for sale as part of normal operations Investments long term assets that are held for sale and used to generate other income outside the company s normal operations Intangible Assets do not



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