Much has been written about the accounting fraud and subsequent bankruptcy of WorldCom. The Baltimore Sun reported that the "fraud was brazen (and) easy to spot. . . . The scheme was not complicated: the company's financial officers recorded routine maintenance expenses totaling $3.9 billion as capital expenditures, which can be written off over decades rather than booked as immediate expenses."
REQUIRED:
a. Explain how capitalizing an item, instead of expensing it, affects the financial statements.
b. Which principle of accounting is being violated? Are other principles involved? Discuss.