Assume that WorldCom paid $7,000 million rental fees to other phone companies in cash at the beginning of Year 1. Instead of correctly debiting the ‘Rent Expense” account (, World Com debited $7,000 million to the “Equipment” account . And, assume that World Com depreciated its long-lived assets such as equipment using the straight-line method over 10 years without salvage value. Use numbers in millions to:
● Explain how would recording the $7,000 million to the Equipment account “delay expense recognition to future periodS” and thus “boost net income for Year 1.” And,
● Besides net income in the income statement, total assets in the balance sheet would also be wrong. Indicate how would total assets at the end of Year 1 be wrong and by how much .
