Question

A major reason Enron used special purpose entities was: a. To increase equity dilution b. To increase working capital c. Off-balance-sheet reporting d. To increase pension plan funding levels

Answer 1

Answer:

The correct answer here is option c. or Off balance sheet reporting.

Explanation:

The usage of special purpose entity(SPE) was a strategical move by Enron with the major objective to restrict or conceal the financial debt or the existing assets and avoid any responsibility of consequent financial liability that might reflect in the accounting books such as Balance Sheet.SPE basically constitutes a strategy for the company to conceal any financial risk or liability and avoid or hide any kind of financial debt in the accounting books to gain investor's trust and confidence.The company also allegedly used the same strategy to ensure book earnings and consistent operational cash flow.