(Solution) - WorldCom capitalized some costs that should under standard acco -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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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 firm?s financial statements and stock prices.
(b) What effect did the revelation about these actions have on the specific companies? stock prices and the prices of other stocks?
(c) Could such actions affect the entire economy?