WorldCom

1. a. Estimated Future Line Costs (L) XXX
Line Cost Expense (E) XXX

b. Line Cost Expense (E) XXX
Estimated Future Line Costs (L) XXX Cash (A) XXX

c. The fundamental principle of accounting that was most likely violated by WorldCom is the matching principle. WorldCom was not matching its estimated expenses with its estimated revenues. If they decrease estimated expenses than they need to decrease the estimated revenues as well. Without doing this, WorldCom is saying that there are no costs for their revenues. 2. d. Construction in Progress (A) XXX
Network Capacity Expense (E) XXX (Assuming that the expense and liability had already been recorded)

e. Network Capacity Expense (E) XXX
Excess Network Capacity (L) XXX (Record the initial expense and liability) Excess Network Capacity (L) XXX Cash (A) XXX (Record the subsequent payment of the unused network capacity) f. The impact of the capitalization causes WorldCom’s assets to be overstated and its expenses to be understated. The net result is a false expense-to-revenue ratio. Their revenues would also higher because of the understatement of expenses on the income statement; this leads to an incorrect net profit. By doing what WorldCom did, they gave their investors a false sense of security. They gave the impression that the company was doing a lot better than it actually was. By making the