Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed.This fraud had many effects on WorldCom's balance sheet.Which of the following does not describe one of the misstatements that resulted on the company's balance sheet?
A)Total assets were too high.
B)Retained earnings were too high.
C)The balance sheet was in balance.
D)Total liabilities were too low.

Question

Quizplus · Accepted Answer

The transaction should have been recorded as an increase to the expense account instead of as increases to asset accounts.As a result,assets are overstated and expenses are understated.That understatement of expenses causes an overstatement of net income and,as a result,an overstatement of stockholders' equity.

Executives at WorldCom Committed an $11 Billion Fraud by Capitalizing