Why Might The Enron Collapse Make A Good Play Accounting Essay

Question 10:

Fix a concern study ( as if for senior direction ) on two of the followers. Use the Internet as a resource. Length about 200-300 words each excepting any appendices. Use right referencing and include a bibliography.

a. Digital Dashboards. Include in your study definitions, types, history, benefits, disadvantages, and screenshots of illustrations and an account of how splashboards could be used to show corporate societal duty.

OR

b. Bounded reason in determination devising.

OR

c. Critically measure ‘predictably irrational ‘ ( Dan Ariely )

OR

d. Why might the Enron prostration make a good drama ) ( Google Enron – the Play )

Question 1:

15-35:

Formula position:

In this exercising, we do n’t cognize precisely how $ 78,000 in dealing ( a ) was paid. In this instance, we assumed that this money is account collectible. If it is paid by hard currency, the operating income for Cash BASIC would be $ 56,800 – $ 78,000 = $ -21,200, a loss of $ 21,200.

2.

From my position, the accrual footing should be considered as the step of Dr. Sanchez ‘s public presentation in 20X1. Because it includes all assets and liabilities looking in all minutess, while the hard currency footing contains merely hard currency which was used in this twelvemonth. So the accrual footing can reflect the efficiency of Dr. Sanchez ‘s concern more precisely than the hard currency BASIC. For illustration, in dealing ( vitamin D ) , $ 20,000 fee billed have been earned and we can merely see this money in the accrual footing but non in the hard currency footing.

The authorities normally uses accrual footing for the income revenue enhancement intent in companies. In instance the authorities uses hard currency BASIC, it will be better for the companies in which hard currency BASIC is less than accrual basic. Normally these companies have little concern and different intents.

Question 2:

15-1, 15-3, 15-4, 15-13, 15-16

15-1:

The income statement ( besides called a net income and loss statement ) replies inquiries about company ‘s fiscal public presentation during a period of clip. The income statement provides information about a company ‘s net income or loss.

The balance sheet ( or a province of fiscal place ) replies inquiries about concern ‘ fiscal position at a specific minute in clip. A balance sheet encompasses assets, liabilities, and proprietors ‘ or shareholders ‘ equity.

15-3:

A company ‘s income statement shows the net income or loss over a span of clip, while balance sheet is a snapshot of the fiscal position at an blink of an eye of clip. Therefore, the income statement is the major nexus between balance sheets. In add-on, the income statement = hard currency flow statement + balance sheet.

15-4:

“ Net income is the difference in the ownership capital history balances at two points in clip ” . This statement is erroneous because net income is the surplus of grosss over disbursals. There are other factors which affect the ownership capital history but non the net income, such as dividends or ownership investing.

15-13:

“ Dividends are distribution of net incomes ” . This statement is non truly precisely. Although profitable operations create the ability to pay dividends, dividends are distributions of assets to shareholders.

15-16:

Ethical motives and unity are of import to comptrollers because they are the hallmark of the accounting profession. Accountants have to do users rely on their information. Furthermore, assurance in fiscal statements depends on the competency and unity of comptrollers and hearers.

Question 3:

16-A1:

Formula View

Question 4:

15-42:

Formula View:

Inventories:

$ 10,895.1 – $ 315.1 – $ 1,057.4 – $ 2,661.6 – $ 6,141.3 = $ 719.7

Entire Stockholders ‘ equity:

$ 173.2 + $ 1,995.8 = $ 2,169.0

( degree Celsius ) Entire liabilities:

$ 2,317.8 + $ 681.7 + $ 4,507.0 + $ 1,219.6= $ 8,726.1

or

$ 10,895.1 – $ 2,169.0 = $ 8,726.1

Question 5:

16-4:

“ Accrued depreciation is a amount of hard currency being accumulated for the replacing of fixed assets ” . I think this statement is non rather precisely. Depreciation is an allotment of an historical cost to write off ( Horngren, 2008, p754 ) . Accumulated depreciation sum expresses merely the expired value of an plus and it is non hard currency or any other assortment of assets that can be used to purchase another plus.

16-7:

“ To capitalise an sum spent means that it will non be charged as an disbursal ” . I do n’t hold with this statement. “ To capitalise an sum means to enter it as an plus instead as an disbursal ” ( Horngren, 2008, p732 ) . Therefore it will non be immediately charged as an disbursal but it will be charged as an disbursal when capitalized plus is used.

16-8:

“ Good will may hold nil to make with the personality of the director or employees ” . I agree with this statement. Harmonizing to Horngren ( 2008, p733 ) , “ good will is the surplus of the cost of an acquired company over the amount of the just market values of it identifiable single assets less its liabilities ” .

16-16:

The statement of hard currency flows illustrates alterations in hard currency grosss and hard currency payments of an organisation during a period. This statement shows the relationship of net income to alterations in hard currency balances. Furthermore, it reports pas hard currency flows in order to foretell future hard currency flows, evaluate direction ‘s coevals and usage of hard currency and find whether company can pay involvement, dividends and debts on clip ( Horngren, 2008, p740 ) .

16-29:

“ Depreciation is an built-in portion of a statement of hard currency flows. ” I do non hold with this statement. Depreciation is added to net income to calculate hard currency flow but it does non impact hard currency and it does non imply a current escape of hard currency ( Horngren, 2008, p754 ) .

Question 6:

16-56:

Formula View

Question 7:

What went incorrect at One Tel?

One Tel failed because of an expensive error, they failed to pull off receivables and liabilities. They spent excessively much clip on advancing and spread outing One Tel but non adequate clip concentrating on operation of the concern system. In 2000, One Tel spent $ 525.6 million on buying Australia spectrum licence in order to spread out their web and take the market from Optus. However there was a job with their system so they could non sell this web at its existent value, and it did non do net income. One Tel was cleared bank bill of exchange in 2001.

What are the major fiscal studies?

The major fiscal studies are:

– Statement of finance public presentation

– Statement of finance place

– Statement of hard currency flow.

– Mugwump Audit Report.

3. Why are net incomes of import? Why is hard currency flow of import?

Net incomes are of import because the function of capitalist economic system is to do a net income or travel out of concern. Net incomes show how a company operates efficaciously and productively every bit good as the return of investing.

Cash flow is of import because it is one of the most primary grounds which make the concern fails. If companies want to better their concern and net incomes, they have to guarantee precise hard currency flow to do right fiscal programs.

4. How did One Tel show a positive hard currency balance?

One Tel showed a positive hard currency balance by the wages on sale volume. By advancing the selling, One Tel wanted clients to utilize more profitable services One Tel offered them.

5. What are the features of a good internal control system?

Harmonizing to the COSO ( Committee of Sponsoring Organizations of the Treadway Commission ) , internal control can be defined as “ a procedure, effected by an entity ‘s board of managers, direction and other forces, designed to supply sensible confidence sing the accomplishment of aims in the undermentioned classs: effectivity and efficiency of operations, dependability of fiscal coverage and conformity with applicable Torahs and ordinances. ” ( Internal Control-Integrated Framework, Executive Summary, 1992 )

The features of a good control system consists five cardinal constituents:

The Control Environment: the most of import one because if sets the tone for the organisation, and contributes the ordinance and construction for the other constituents.

Hazard Appraisal: used to place, analyse and manage relevant hazards to the accomplishment of aims.

Information and Communication: used to place, gaining control, and exchange fiscal, operational, and conformity information in a timely mode in order to enable people to transport out their duties.

Control Activities: included policies and processs that make certain direction directives are implemented.

Monitoring-processes: used to measure the quality of internal control public presentation over clip. ( Internal Control-Integrated Framework, Executive Summary, 1992 )

Question 8:

17-11:

“ It is better to acknowledge good will than to compose up assets to their just market values ” . In a amalgamate statement, we have to compose up assets to their just market values at the clip of the acquisition. However if it is possible, acknowledging good will can cut down the depreciation of the single assets.

17-15:

The two ratios which are multiplied together to give the pretax operating rate of return on mean entire assets are runing income per centum on gross revenues and entire plus turnover.

The pretax operating rate of return on mean entire assets = runing income per centum on gross revenues * entire plus turnover.

17-19:

“ If IBM had been forced to write off ( the package development cost of ) $ 785 million, its net incomes would hold been cut by 72 cents a portion. With IBM selling at 14 times gaining, write offing the cost might hold knocked over $ 10 off IBM ‘s portion monetary value. ” The citation assumes that the ratio of monetary value net incomes is fixed. If the package development cost of $ 785 million, it means that there was a lessening in net income about $ 785 million, so the net incomes per portion was cut by 72 cents. Price gaining ratio is calculated by the market monetary value per portion / net incomes per portion. IBM monetary value gaining ratio is stable at 14 times and the net incomes per portion was cut by 72 cents are the grounds why the IBM ‘s portion monetary value reduced $ 10.

17-20:

Suppose the president of your company wanted to exchange depreciation methods to increase reported net income: “ Our stock monetary value is 10 % below what I think it should be ; altering depreciation method will increase income by 10 % , therefore acquiring our portion monetary value up to its proper degree ” . From my position, altering the depreciation methods is non a good manner. It can do income addition but it will make a incorrect value of the assets in the hereafter. Furthermore, we can non be certain that increasing reported net income will do the stock monetary value to lift, because the stock market does non wholly depend on the reported net income.

Question 9:

17-36

Formula View

Question 10:

Digital splashboards

Executive Summary

This study provides inside informations about digital splashboards, includes the definition, types, history, benefits and disadvantages of digital splashboards. In add-on, it gives an illustration of digital splashboards screenshot every bit good as how splashboards could be used to show corporate societal duty.

Introduction

Digital splashboards play an of import function in direction information system as they are really utile to find the departmental public presentation of a company.

Definition

A splashboard is described as an executive information system which is easy to be read. Digital splashboards can be known as ” existent clip visual image tools of critical concern indexs that help in determination devising ” ( Dursteler, 2004 ) . They are the direction of all informations base within an organisation, so they can mensurate the departmental public presentation.

Types

There are three chief types of digital splashboards: stand entirely package applications, web-browser based applications, and desktop applications.

History

The thought of digital splashboards was based on the survey of determination support systems in 1970s. However, digital splashboards were appeared in the late of 1990s, with the rush of the web. Digital splashboard is one portion of Digital Nervous System concept which was developed by Microsoft in the same this period of clip ( From Wikipedia – Splashboards ) .

Benefits

There are many benefits of digital splashboards as they help directors command the varied sections in their companies. These are the other maps of digital splashboards:

– Ocular presentation of public presentation steps

– Identify and right negative tendencies

– Measure efficiencies/inefficiencies

– Generate elaborate studies demoing new tendencies

– Brand determinations based on concern intelligence

– Align schemes and organisational ends

– Save clip over running multiple studies

– Addition entire visibleness of all systems immediately

( From Wikipedia – Splashboards )

Disadvantages

Digital splashboards measure the public presentation based on input informations of companies. Therefore, if the information is non precisely, there will be a bad consequence in the measuring of digital splashboards and it will do a bad determination.

Companies have to pass money to keep their information system in order to guarantee that digital splashboards can roll up available informations from all sections.

Screenshot

As we can see, this is the screen shooting of digital splashboards, which illustrates the day-to-day gross revenues of an organisation in October 2003. We can see the sum of day-to-day units sold every bit good as the day-to-day cargos ( Dursteler, 2004 ) .

How splashboards could be used to show corporate societal duty

Splashboards monitor the public presentation of an organisation so it could be used to show corporate societal duty. Splashboards reflect the duty of an organisation which has to run into the community aspirations.

Decision and Recommendations

In decision, based on available informations, digital splashboards are really utile for organisations to supervise their concern public presentation and doing determinations. Digital splashboards should be used loosely in companies in order to assist companies develop in the right manner.

d. Why might the Enron prostration make a good drama?

Executive Summary

The dislocation of Enron is really celebrated over the universe and there is a drama about this dirt. This study gives information about the history of Enron and the Enron drama, the accounting job which made Enron autumn and the lesson we can larn from this company.

Introduction

Enron Corporation used to be the most powerful American energy companies in Houston, Texas. However, the rapid prostration of Enron created a large dirt in the fiscal history. In 2009, the drama – Enron was written by the British dramatist Lucy Prebble, based on the Enron dirt. It won many awards for best new drama every bit good as best manager and best histrion ( From Wikipedia – Enron, the drama ) . So why might the Enron prostration make a good drama?

History

Enron was established in 1985 by the amalgamation between Houston Natural Gas and InterNorth. There were about 21,000 employees in this company and it was one of the universe ‘s taking in electricity, natural gas, mush and paper. In 2000, it reported the grosss of $ 111 billion dollars. However, in the terminal of 2001, it collapsed so rapidly in an incredible manner. ( Healy and Palepu, 2003, p4 )

The prostration of Enron

The autumn of Enron was started in August 2001, when CEO Jeffrey Skilling resigned for unrevealed grounds. After that, it fell into loss and debt. Finally, on December 2, 2001, the company declared bankruptcy.

The accounting job

One of the chief grounds why Enron collapsed is the accounting issues. Mark Jickling ( 2002, p3 ) , Coordinator Specialist in Public Finance Government and Finance Division, mentioned in his study that Enron ‘s operations and fundss position were non been shown clearly in the fiscal statements to stockholders and analysts.

In late 2001, Enron recognized that some new concerns were non runing every bit good as expected. It had to sell its electric power works, Portland General Corp. , at a loss of $ 1.1 billion on October 5, 2001. ( Healy and Palepu, 2003, p12 )

With these accounting jobs, the Enron ‘s stock monetary value was halved while its adoption costs were increased. On November 28, Enron ‘s accepted to be acquired by its rival, Dynergy, in order to avoid bankruptcy. On November 28, Enron ‘s public debt was dropped to debris bond position, so Dynergy drew back. ( Healy and Palepu, 2003, p12 )

As a consequence, on December 2, 2001, Enron led for bankruptcy with its stock monetary value at merely $ 0.26. ( Healy and Palepu, 2003, p12 )

Lesson from Enron dirt

The autumn of Enron in a short-time created a lesson for all companies in the universe. One of the most of import for all companies to do a concern viable is the direction of their fiscal coverage so companies can guarantee everything is right. The lesson from many fiscal errors of Enron made a good drama, Enron – the Play.

Mentions:

Committee of Sponsoring Organizations of the Treadway Committee ( COSO ) . ( 1992 ) . Internal Control- Integrated Framework, Executive Summary. www.coso.org.

Juan C. Dursteler ( 2004 ) . Digital Dashboards. The digital magazine of InfoVis.net.Retrieved April 12th 2004 from hypertext transfer protocol: //www.infovis.net/printMag.php? num=143 & A ; lang=2

Horngren, et Al. ( 2008 ) . Introduction to direction accounting ( 14th Ed. ) . Pearson: Prentice Hall

Wikipedia – Splashboards. Retrieved from: hypertext transfer protocol: //en.wikipedia.org/wiki/Dashboards_ % 28management_information_systems % 29

Wikipedia – Enron, the drama Retrieved from: hypertext transfer protocol: //en.wikipedia.org/wiki/ENRON_ % 28play % 29

×