Supplemental Homework #2



340a Supplemental Homework #2

Writing assignment:

This assignment is worth 100 points. It is due on October 29 at the beginning of class.

This assignment requires you to do some research on the Internet and/or the library.

You will be researching a company that has had some relatively recent revenue recognition problems. I have narrowed the choice of company to the list below. You can help each other with the research and editing of each other's papers. I will also answer any questions you might have.

Required: A 3-4 page memo (double-spaced), grammatically correct, that addresses the issues outlined below:

(1)You should describe the facts surrounding a particular company’s revenue recognition problems. The description should include a 340a level discussion of how the revenue recognition principles were violated (you could find most all of the rules in Chapter 7 of your book). It is also interesting to discuss how the problems were discovered.

(2) You should include an illustration of the incorrect reporting. Which balance sheet and income statement accounts were impacted by the problems? (The illustration can use t-accounts, or journal entries, or a flowchart – be creative.)

(3) You should describe the investors’ (either debt or equity investors) reaction to the news of the accounting problems. (You should try to give me some information about the stock price reaction to the initial news and you should find out if the price recovered subsequently.)

(4)You should describe what has happened since the discovery of the accounting irregularities and possibly make suggestions about how the company might avoid such problems in the future.

(5) You should include a bibliography and cite your sources as appropriate.

Research Strategy: The best place to begin your search is probably the internet or the Lexis/Nexis database. You can get to this database through the Internet and I have outlined the steps below.

1) Go to the UMSL Home page and click on Resources and Services.

2) Click on libraries.

3) Go to left-hand side panel and find “Electronic Databases”. Click on Alphabetically.

4) Click on Lexis-Nexis Academic Universe (notice that this is restricted to on campus or dial-up accounts!)

5) Connect to Lexis-Nexis (click on ).

6) Click on News.

7) Fill in the search screen as follows:

Step1 : Business News

Step2: Business & Finance

Step 3: Name in "Company Name" (from list below)

and revenue in "full text"

and sec in "full text" (for AOL only, leave off for others)

Date Previous 2 years

Hit search

Other good resources for research:

Search the internet through YAHOO or some other search engine. When you search for a particular company, use something like: Intelliquis+ revenue recognition OR Global crossing + revenue + sec to narrow your search. There are lots of business press articles out there. Make sure you cite the actual source and not just the web address.

The Wall Street Journal – this is an excellent source. Unfortunately, full text WSJ articles are not part of LEXIS/NEXIS so you have to go to the WSJ index in the library to find the stories. It will be worth the trip in most cases because the WSJ stories are usually covered at a higher technical level than general press stories might be.

Company web pages – this is OK now that companies are required by the SEC to disclose investor information more thoroughly. Use other sources in addition to Company pages to get an unbiased view of things.

Companies: Choose one of the companies below. If you know of another company that you would be interested in using, please clear it with me BEFORE you do a lot of work.

Company Name

Peregrine (May 7, 2002 articles are a good start)

Global Crossing (9/19/02 article is a good start)

AOL Time Warner (8/17/02 article is a good start)

Intelliquis (7/17/02 article is a good start)

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