WorldCom capitalized some costs that should,under standard accounting practices, have beenexpensed. Enron and some other companies tooksimilar actions to inflate their reported income and tohide debts. (a) Explain how such improper and illegalactions would affect the firms’ financial statementsand stock prices. (b) What effect did the revelationsabout these actions have on the specific companies’stock prices and the prices of other stocks? (c) Couldsuch actions affect the entire economy?
WorldCom capitalized some costs that should,under standard accounting practices, have beenexpensed. Enron and some other companies tooksimilar actions to inflate their reported income and tohide debts. (a) Explain how such improper and illegalactions would affect the firms’ financial statementsand stock prices. (b) What effect did the revelationsabout these actions have on the specific companies’stock prices and the prices of other stocks? (c) Couldsuch actions affect the entire economy?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
WorldCom capitalized some costs that should,
under standard accounting practices, have been
expensed. Enron and some other companies took
similar actions to inflate their reported income and to
hide debts. (a) Explain how such improper and illegal
actions would affect the firms’ financial statements
and stock prices. (b) What effect did the revelations
about these actions have on the specific companies’
stock prices and the prices of other stocks? (c) Could
such actions affect the entire economy?
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