One Way Enron Manipulated Its Financial Statements Was to Sell

question 95

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 off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement.
• D) Both B and C are deceptive.

---

Definitions:

Compensatory Damages

Monetary awards given to individuals in civil lawsuits to compensate for losses, harm, or injuries caused by others' actions.

Breach of Contract

The failure to perform any term of a contract, written or oral, without a legitimate legal excuse.

Federal E-SIGN Act

A U.S. law enacted in 2000 that ensures the validity and legal effect of contracts entered into electronically.

Online Contracting

The process of forming contracts over the internet, involving the offer, acceptance, and consideration elements typical of traditional contracting.