Financial Instrument Accounting

On Wednesday, May 26, 2010, the FASB released an exposure draft for the purposes of improving accounting for financial instruments. The new rules, projected to take effect in 2013, incorporate both amortized cost and fair value information about financial instruments held for collection or payment of cash flows.

Questions:

1. According to the article, how does the proposal plan to provide more timely information for financial statement users about anticipated credit losses?

2. What is the deadline for comments and when does FASB plan to hold roundtable meetings?

3. How many members are on the AICPA’s Accounting Standards Executive Committee, that has weighed in on the proposal and who are those represented on the committee?

Source:

Lamoreaux, Matthew (2010). FASB Proposes Comprehensive Changes to Financial Instruments Accounting, Journal of Accountancy, May 26 (Retrievable online at http://www.journalofaccountancy.com/Web/20102977.htm)

A New Twist for Job Seekers

Unemployed Individuals can increase their attractiveness to prospective employers by knowing about  certain tax breaks that employers can secure by hiring them. One group , National Tax Credit Group, LLC, is promoting this advantage by creating a “Tax Credit Card” which they issue to prospective employees after screening them for hiring credit eligibility. This article presents information on how employees can highlight the applicable hiring credit on their resume, as well as work the issue into an interview to improve their chances of being hired.

Questions:

1.  According to the article, which states have the most attractive state-level tax credits for hiring qualified employees?

2. What is the range of tax credits per employee hired?

3.  From a financial accounting standpoint, which journal entries will be impacted by the tax credits? Explain.

Source:

Christian, Blake. (2010). “Unemployed can use tax laws to secure a job,” Education and Careers: Accounting WEB, May 21 (Retrievable online at http://www.accountingweb.com/topic/education-careers/unemployed-can-use-tax-laws-secure-job)

What If You Can’t Pay Payroll Taxes?

In this video, Darrin T. Mish, tax attorney discusses some of the questions businesses ask about non-payment of payroll taxes.  His advice is to “get current” as soon as possible, even though the IRS may not catch the lapse for up to four years and because IRS payroll tax problems can quickly escalate, once identified.

Questions:

1. What form is the Employer’s Quarterly Federal Tax Form?

2. What is known as the trust fund portion of the payroll tax obligation?

3. In general, if an agreement is made with the IRS to pay back payroll taxes, over how many years is this agreement?

Source: YouTube.com. What to do if you are behind on payroll taxes, June 23, 2009. (Retrievable online at http://www.youtube.com/watch?v=HTvpHyl4WsA)

Fighting Back Against Payday Lenders

Wisconsin lawmakers agreed on Thursday, April 22, 2010, to regulate payday lenders. Wisconsin had been the only state not to regulate this industry, which consumer advocates said allowed its rapid growth and trapped too many borrowers who take out short-term loans with high interest rates in a cycle of debt.

Questions:

1. What were some provisions of the plan?
2. According to the plan, if a person’s monthly income was $5,000, how much could he/she borrow from a payday lender?
3. Why do you think that Wisconsin was the last state to pass some type of regulation on this industry? What are the regulations on payday lenders in your state?
4. If a person wanted to take out a short-term auto title loan with a payday lender in the state of Wisconsin and had a car with a value of $14,000, how much could they borrow under this new regulation?

Source:
Bauer, S. (2010). Wisconsin Lawmakers Agree to Regulate Payday Lenders, Associated Press, April 23 (Retrievable online at http://www.google.com/hostednews/ap/article/ALeqM5jZC94QO-79DsWzWnEhQQUt0boxuAD9F8GUL83)

Late Payments Matter

Late Payments Matter

According to new research, approximately 4,000 small and medium sized firms in the U.K. collapsed in 2008 due to late payments by customers. This amounted to approximately 62 billion pounds that were more than 30 days late and of this 15.5 billion that were more than 120 days overdue. For more than twelve percent of these firms, over 60% of all their invoices are paid late.

Required:

1.  What can businesses do to alleviate the problems of late payments? 

2.  Explain the cash flow implications of this problem. 

3. What type of financial ratios could a company perform in order to better understand the severity of this problem? 

4.  How does the current “credit squeeze” add to the woes for both businesses and consumers?

Source: Murchie, Kay. (2010) Firms collapse due to late payments, according to research. Financial Markets – Economy News, April 15 (Retrievable at http://www.financemarkets.co.uk/2010/04/15/firms-collapse-due-to-late-payments-according-to-research/)

Avatar Accounting

A working knowledge of accounting is helpful for almost any career endeavor. In real estate, for example, brokers must have a thorough understanding of the numbers involved in the decision-making process.  Real estate brokers traditionally determine whether a buyer can make payments to a bank, identify tax benefits of a purchase, and even determine whether cash flow from an industrial property justifies a purchase price. The accounting expertise of real estate brokers is now finding relevance in new frontiers like Second Life, an online virtual community. In Second Life, real estate entrepreneurs are applying their accounting knowledge when they rent real estate “sim” islands to other Second Life avatars. With their understanding of accounting, entrepreneurs are making real-world profits and finding financial success in a non-traditional market.

1. What ethical concerns might a seller of “sim” real estate consider?

2. Are the real estate stakeholders of a “sim” transaction the same as the stakeholders in the real world?

(Retrievable online at http://money.cnn.com/video/news/2010/03/17/n_real_estates_second_life.cnnmoney/)

Opting for Electronic Transactions

More companies are cutting eliminating the acceptance of check payments from their business plans. According to Karen Aho, Whole Foods Markets, Fresh & Easy, and Banana Republic (a brand of Gap, Inc.) are just a few of the companies that refuse checks as payment from customers. According to the Federal Reserve, paying by check has declined by 6.4% since 2003. Financial services consultant, like James Neckopulos, believe that checks will be a thing of the past in 10 years.

QUESTIONS:

1. The article talks about how “paper costs money.” What are these costs associated with taking checks and where would they be accounted for on the financial statements?
2. Are there any costs associated with accepting credit card payments from customers? If so, how are these recorded in journal entries?
3. While some companies cite faster check-out lanes as an advantage of no-check policies, what are the financial advantages of accepting only cash, credit cards, or debit cards? What are some of the disadvantages in terms of customer relations?
4. Are payments by check reported separately on financial statements? If not, then where?

SOURCE:

Aho, K. (2009). Still Use Checks? Join the Dinosaurs. MSN.Money (Retrievable online at
http://articles.moneycentral.msn.com/Banking/BetterBanking/still-use-checks-join-the-dinosaurs.aspx)

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