One Way Enron Manipulated Its Financial Statements Was to Sell

question 107

Multiple Choice

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms,while giving a promise to buy back those assets at a later date.The incoming cash was recorded as revenue,but the promise to buy back the assets was not disclosed.Which of the following is one of the ways that such a transaction is deceptive?

• A)The assets should have been listed on the balance sheet as long-term assets.
• B)Cash raised by selling assets should not be recorded as revenue.
• C)The cash raised should have been recorded as short-term loans.
• D)The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A)or notes to the financial statement.
• E)The promise to buy back the assets should have been listed under accounts payable.

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Definitions:

Marginal Cost

Incremental expense incurred from the production of one additional unit of a good.

Average Total Cost

The total costs of production divided by the total output, indicating the average cost per unit of output.

Total Cost

The combined total of expenses involved in making goods or services, including costs that do not change and those that do.

Variable Input

Any resource used in production whose quantity can be changed in the short term to increase or decrease output, such as labor or raw materials.