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Fact, Fiction, and Fair Value Accounting at Enron


Absent any other reasonable explanation as to why https://intuit-payroll.org/ assets lost so much value in bankruptcy, McLean and Elkind tested the idea that PRMA never had any value. The author wrote off Enron’s PRMA year by year from 1992 through 2000. This is arbitrary treatment, but it is intended to demonstrate the magnitude by which fair value accounting affected Enron’s financial statements. Series 5 in Exhibit 2 shows the effect on Enron’s Zeta credit ratings during the period.

  • These materials are purchased ordinarily by manufacturers for use as basic or intermediate raw materials in the production or compounding of other materials, or as solvents or alkalyzers in various manufacturing and converting processes.
  • Costs related to the repair or upgrading of fabricated equipment in service, which does not extend its remaining useful life, must be expensed.
  • The evidence in this case does not prove or support an inference that FMC combined and conspired with others to increase soda ash list prices in 1955 and 1956.
  • However, Oskin was initially overruled by his superiors and FMC continued to withhold decision on a discount to P&G.
  • Such costs are usually recorded as an expense when incurred.
  • The bankruptcy examiner’s discovery of off–balance-sheet debt was material and would have reduced Enron’s credit rating by about one notch, using Exhibit 2’s Zeta analysis in 2000.

Soda, raising the list prices of solid caustic soda to $96.00 per ton, 700 pound drums, carload lots, F.O.B. plant, and of flake caustic soda to $104.00 per ton, 400 pound drums, carload lots, F.O.B. plant, to be effective for contract sales on April 1, 1958, and effective for spot sales immediately. Enron’s balance sheet also included current and noncurrent accounts captioned “price risk management assets” . Skilling and Enron persuaded the SEC in January 1992 that Enron should be able to use mark-to-market accounting to value long-term gas contracts and derivatives .

Property Information for 1106 West Cypress Street

If, however, 1106 3 Plant Assets had signed the proposed contract of May 29, 1958, it would have had the P&G caustic soda business. In 1956, Arthur Smith attended a luncheon at the University Club in New York City. The luncheon was hosted by John Coey, Eastern Sales Manager of Hooker Chemical Co. Present also were a number of executives of other companies which produced and sold flaked dry caustic soda.

A calendar entry in the desk diary of Bingham of Columbia-Southern and a confirming telegram from Bingham to Cremers of Wyandotte noted a planned visit by Cremers to the former’s office in Pittsburgh on July 29, 1958. There is no evidence concerning the purpose or results of the meeting, or that the meeting in fact occurred, and no evidence from which the Court can infer that if the meeting was held the Wyandotte study was discussed, or that the meeting had any bearing whatsoever on Columbia-Southern’s 1960 chlorine price increase. Relations with P&G, FMC’s largest account ($21 million in all chemicals, with $18 million in phosphates alone) were being jeopardized by FMC’s nonaction on the subject of a discount on liquid caustic soda. Oskin who prior to his appointment in April, 1958, was not directly involved in the earlier handling of the P&G matter, was of a view that a discount should have been extended to P&G, and he was critical of FMC’s vacillation on this matter. However, Oskin was initially overruled by his superiors and FMC continued to withhold decision on a discount to P&G.

Financial and Managerial Accounting, 2nd Edition

Series 3 provides a base of comparison for proposed adjustments to the financial statements. The market approach uses “prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.” Valuation techniques include market multiples and matrix pricing. Tabular disclosure of long-lived assets, excluding financial instruments, long-term customer relationships of a financial institution, mortgage rights, deferred policy acquisition costs, and deferred tax assets, by geographic areas located in the entity’s country of domicile and foreign countries in which the entity holds assets. Debit Amortization Expense and credit Accumulated Amortization. Leasehold improvements are amortized over the life of the lease or the life of the improvements whichever is shorter. Gross acquisition cost is disclosed on the balance sheet along with their accumulatedamortization. Land Cost includes purchase price, realtor commissions, title insurance, legal fees, accrued property taxes, legal fees, title insurance fees, accrued property taxes, surveying, clearing,landscaping, and local government assessments for streets, sewers, etc.

What are 3 types of assets?

Common types of assets include current, non-current, physical, intangible, operating, and non-operating.

Depletion expense per period is based on the units extracted. The calculation is similar to units-of-production depreciation. Natural resources are reported on the balance sheet at cost less accumulated depletion. Plant Assets Tied into Extracting When the usefulness of these plant assets is directly relatedto the depletion of the resource, the plant asset is depreciated in proportion to the depletion of the resource (use units-of-production method and the life of the resource).

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