Enron Used Special-Purpose Entities To

question 2

Multiple Choice

Enron used special-purpose entities to:

• A) Keep large amounts of debt off of its balance sheet
• B) Create the appearance of activities that fooled inspectors
• C) Distort its reported Accounts Receivable
• D) Avoid the use of accelerated depreciation on assets for which this method was required to be applied

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Definitions:

Cash Disbursements

Represents the money flowing out of a company to cover expenses, including payments to suppliers and employees.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to individual products or job orders, calculated before the year begins based on estimated costs and activity levels.

Direct Labor-hour

A measure of the work time involved in producing goods, usually expressed in hours, directly tied to the labor cost of manufacturing.

Accounts Payable

Short-term liabilities representing amounts owed to suppliers or creditors for goods and services received that have not yet been paid for.