Each aircraft was sold average development cost was

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each aircraft was sold, averagedevelopment cost was expsned andcorresponding amount written offdevelopment-cost asset.Lockhead capitalized $500 million ofTriStar development costs, programmaking losses and continued makinglosses, clear that future sales notgoing to make profit and that "asset"was impaired and needed to be writtenoff.Instead of writing off entireamount, only wrote off annualinstallments, program lost over $900million when Lockheed finally wroteoff remaining $400 million.by end of1983, Lockhead ceased production ofTriStar, only 250 planes built, short ofbreak-even point of approximately 500aircraft.Term:Signals of Lockheed's failure toRecord Asset ImpairmentsDefinition:1.Development of product orprogram accompanied by recording ofmaterial, intangible asset such asdevelopment costs or start-up costs,product or program hits schedulingproblems and runs at loss. This can befound in press article, notes in f/s,segmented income statement ofmanagement discussion and analysis(MD&A).Lockheed found in pressarticles2.Material intangible assets and
company is making overall loss,indicates that intangible assets areimpaired.Purpose of assets overall isto produce future profits, if notproducing profits now, indication thatmay not produce profits in the future3.Asset-turnover ratio declines, for acategory of assets or total assets,indicates that assets may be impaired.Sales-to-total assets ratio declines orratio of sales to specific asset declines,alert in possibility of either assetsfailing to achieve objective or assetshould not be capitalized in first place4.Accounting policies note companyhas policy that is slower than othercompanies in industry to write offassets such as development costs orstart-up costs.Alert reader ofaggressive overstatement in value ofassets, failure to record impairment ofassets5.Restructuring charges in currentperiod indicate company failed torecognize impairments of assets inprevious periods.Scrutinize notesexplaining restructuring charges.Indication that company failed towrite off assets impaired previouslymay indicate that company is in habitof aggressive overstatement ofearnings by failing to recognizeimpairment of assets.
Term:Enron's SchemesDefinition:1.The Abuse of Mark-to-MarketAccounting via Mariner Energy2.The Abuse of Special PurposeEntities SPE #1: JEDI, SPE #2:Chewco, SPE #3: LJM1, SPE #4:LJM2 and the Raptors, SPE #5 and#6: Whitewing and Osprey3.The Prepay TransactionsTerm:Enron Scheme #1: The Abuse ofMark-to-Market Accounting viaMariner EnergyDefinition:Mark-to-Market accounting allowedEnron to look at an asset (merchant orcontract or publicly traded stocks) andrevalue it to its "fair" value.Thisinvolved increasing the asset's valueon the balance sheet and increaseprofit on the income statement.

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