Question

Which of the following was used by worldcom to manipulate its earnings?

O using special-purpose entities
O boosting operating income by shifting operating expenses to other items
O capitalizing costs that should have been expensed
O expensing costs that should have been capitalized

Answer 1

WorldCom manipulated its earnings by capitalizing costs that should have been expensed, an action that misrepresented its financial condition and violated GAAP.

Step-by-step explanation:

WorldCom manipulated its earnings by capitalizing costs that should have been expensed. This accounting practice allowed the company to inflate its net income by reporting less expenses and more assets, ultimately misleading investors and regulatory agencies.

The manipulations involved taking costs that were actually day-to-day business expenses and recording them as long-term capital investments. This was a clear violation of Generally Accepted Accounting Principles (GAAP) and a deceitful financial practice. By doing so, WorldCom was able to present a more favorable financial situation than was actually the case, which is considered a form of accounting fraud.