1. In late 2000, Lucent announced that revenues would be adjusted downwards by $679 million as a result of revenue recognition problems. Yet the firm's market capitalization plummeted by $24.7 billion. Why do you think the market reacted so negatively to Lucent's announcements of the problems?
2. Find what financial statement adjustments will Lucent have to make to correct the revenue recognition problems announced in late 2000?
3. How would you judge whether a firm is likely to face revenue recognition problems?
4. Assess whether any of Lucent's competitors are likely to face revenue recognition problems in the coming quarters. If so, estimate what effect they are likely to have on their financial statements.