Food – Beautiful – Food!

Have you ever wondered how restaurant chains get the food to look so good on TV?  This is the work of a micro-niche of advertising.  While you may not know the names of the directors, like your favorite movie, there are five or six major players in this industry that fill the $4 billion in television air time bought by restaurant chains and food conglomerates each year.  Fast-food, casual-dining and pizza chains, as well as what are lumped together as “doughnut and coffee restaurants,” spent $300 million more on TV ads in 2010 than they did in 2007, according to Kantar Media, a market research firm. If patterns hold, the numbers will be even larger this year.  “Generally speaking, restaurant chains spend about 3 percent of revenue on advertising,” says Michael Gallo, an analyst at C. L. King & Associates. “Because these restaurant systems are large and have density, television is an easy way to reach customers in a cost-effective way.”

Questions:

1. Assume you own a drive-in Sonic restaurant that grosses about $250,000 per year.  Based on this article, how much of this would probably go to television advertising of your food?

2.  How did Campbell Soup Company get in trouble with the FTC in the 1970’s regarding food advertisements?  Assume that the fine was $500,000.  How would you as an accountant for Campbell Soup record the journal entry for this fine?

3.  Assume you are a consultant for a restaurant chain.  How would you advise them between the difference of enhancement and fakery if they are trying to film a commercial for a $5.99 pizza? What are some of the issues of concern?

4.  How have the economics of shooting food changed in recent times?

5.  What issue in this article was the most interesting to you?

Sources:

Segal, David (2011) Grilled Chicken, That Temperamental Star, New York Times, Oct. 8 (Retrievable online at http://www.nytimes.com/2011/10/09/business/in-food-commercials-flying-doughnuts-and-big-budgets.html?hp)

 

New York Times video. 2011. (Retrievable online at http://video.nytimes.com/video/2011/10/08/business/100000001098327/steamy-scenes-of-pasta.html)

 

Financial Crisis in Greece

While banks and European leaders hold abstract talks in foreign capitals about the impact of a potential Greek default on the euro and the world economy, something frighteningly concrete is under way in Greece: the dismantling of a middle-class welfare state in real time — with nothing to replace it.

Since 2010, the government has raised taxes and slashed pensions and state salaries across the board, in an effort to rein in the bloated public sector that today employs one in five Greeks. Last week, the government announced it would put 30,000 workers on reduced pay as a precursor to possible termination and would cut pensions again for nearly half a million public-sector retirees.

Questions:
1. The article mentions raising the value-added tax.  What is a value-added tax?  Does the U.S. have such a tax? Should they?  Discuss.

2. Ms. Firigou received a pay cut last year.  What percentage pay cut was it?

3. How does this financial crisis impact the U.S.?  What is at the heart of this crisis?

Source:

Donadio, R. (2011) Worried Greeks Fear Collapse of Middle Class Welfare State. The New York Times, September 24 (Retrievable online at http://www.nytimes.com/2011/09/25/world/europe/as-welfare-state-collapses-greeks-suffer-and-fear-future.html?pagewanted=1&_r=3&hp)

Expensive Snacks?

By now you have probably heard that an audit of the Department of Justice by the Inspector General says that taxpayer money was wasted on overpriced food and drinks. At one conference, the DOJ spent $4200 on 250 muffins–that’s about $16 a muffin. But what did the report actually say?

Considering the EOIR reported that at least 534 people received refreshments at its 2009 Legal Training Conference in Washington, D.C., it spent an average of $14.74 per attendee per day on food and beverages—just above the $14.72 JMD limit for refreshments. We credit the EOIR for implementing the following controls to reduce food and beverage costs: (1) it provided just refreshments and not full meals, (2) it ordered fewer refreshments than the total number of reported attendees, and (3) it received 15 gallons of coffee, 30 gallons of iced tea, and 200 pieces of fruit for free. However, many individual food and beverage items listed on conference invoices and paid by the EOIR were very costly. The EOIR spent $4,200 on 250 muffins and $2,880 on 300 cookies and brownies. By itemizing these costs, we determined that, with service and gratuity, muffins cost over $16 each and cookies and brownies cost almost $10 each.

Questions:

1.What controls were in place that the report mentioned?

2. What is the point that Drum is trying to make?

3. Compare this article to the video.  Discuss the situation in terms of variances and budgets that you use in managerial or cost accounting.

 

Source:

Drum, K. (2011). The Great $16 Muffin Myth. Mother Jones, Sep. 21 (Retrievable online at http://motherjones.com/kevin-drum/2011/09/great-16-dollar-muffin-myth)

CBS News VIDEO (2011). Audit finds DOJ Pays Big Bucks for Snacks, Sep. 21.

Tax Breaks Galore in Video Games

The United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels, but also to video game producers. They are able to combine tax breaks across software development, the entertainment industry, and online retailing for a bonanza effect.

Electronic Arts, founded in 1982, has since become one of the world’s dominant video game companies, producing popular titles like SimCity, FIFA soccer, Harry Potter, and Madden NFL, largely due to huge tax incentives.

Questions:

1. Discuss why you think that Union Carbide failed to meet the experimental threshold for the R & D credit, though video game makers often seem to have little trouble meeting the requirement.

2. What was the most interesting point made in this article that pertains to you as an accountant? Do you agree or disagree with the tax incentives that the video game industry has been able to capitalize on? Discuss.

3. Do you agree or disagree with video game industry officials that say by improving technology, they are indirectly helping society at large? Why or why not?

Source: Kocieniewski, D. (2011). Rich Tax Breaks Bolster Makers of Video Games, The New York Times, Sep. 10 (Retrievable online at http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?_r=2&nl=todaysheadlines&emc=tha2)

Huge job cuts – Bank of America

Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.

In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”

The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs.  The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.

According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News.  But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.

Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.

Questions:

1.  How will the plans presented in the article shrink the balance sheet?  Be specific.  Based on the video, where does the Wall Street analyst think that the money from the cuts will go?

2. Explain the recording of Countrywide’s litigation expenses and liabilities.  What specific types of liabilities will be affected?

3.  What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role?  What is Bank of America’s current stock price and what has happened to it during 2011?

4.  What percent of jobs is the bank cutting this year as a percentage of its total workforce?  If you compare the 30,000 job cut against their current workforce, what percentage is this?

Source:

Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)

 Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at  http://abcnews.go.com/Business/wireStory?id=14500592)

Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at  http://video.foxnews.com)

Maybe he should have taken an accounting course?

Former Director Tom Wheeler is on trial, charged with several counts of fraud, misconduct in office and conspiracy. Wheeler has pleaded not guilty to the charges.  His defense focuses on his lack of experience, being a bad student in college, and not taking an accounting or law class.

Questions:

1.  Why was Mr. Wheeler charged with fraud? 

2.  From everything you have read, how do you believe he may have committed fraud or benefitted from his position? Discuss his defense.  Is it plausible?

3. Explain some of the internal controls mentioned in the case that were violated, beginning with the hiring of Mr. Wheeler.

 

Sources:

Boshart, R. (2011). Tom Wheeler wanted to leave Iowa Film Office, brother testifies. The Gazette, August 24 (Retrievable online at http://thegazette.com/2011/08/24/tom-wheeler-wanted-to-leave-iowa-film-office-brother-testifies/)

WHO-TV Staff. (2011). WHEELER TRIAL: Minnesota filmmaker Wendy Weiner Runge Testifies During Tom Wheeler’s Fraud Trial. MSNBC.com, August 24 (Retrievable online at http://www.msnbc.msn.com/id/44258762/ns/local_news-des_moines_ia/t/wheeler-trial-minnesota-filmmaker-wendy-weiner-runge-testifies-during-tom-wheelers-fraud-trial/)

KCCI.com Staff (2011). Film Office Director Talks Experience, Budgets, More. KCCI.com, August 24 (Retrievable online http:// www.kcci.com/news/28961656/detail.html)

Staff (2011). Blouin: Former film office manager not qualified. Chron.com, August 26 (Retrievable online at http://www.chron.com/news/article/Blouin-Former-film-office-manager-not-qualified-2142472.php ).

Who’s Next?

The struggling town of Central Falls Rhode Island filed a bankruptcy petition on Monday, August 1. A Boston bankruptcy judge held the first hearing on Wednesday August 3, stressing that the court is in “unchartered waters” as it sorts through the $80 million in unfunded pension and benefits liabilities and a $5 million budget deficit.

Questions:

1. Central Falls filed a Chapter 9 bankruptcy.  What is the difference between Chapter 9 and a Chapter 11 bankruptcy?

2.  The Acting Auditor General of Rhode Island, Dennis Hoyle stated that the “At $2.4 billion, the newly disclosed unfunded liability for other post-employment benefits provided by municipalities overshadows the collective unfunded liability for all locally administered pension plans which now totals $1.9 billion. Based on this statement, explain the term “unfunded liability” in terms of pension accounting.

3.  What is the difference between post-employment benefits and pension plans?

4. Explain unfunded pension benefits, using a journal entry or entries to illustrate your answer.

Sources:

CNN video. (2011). Bankrupt town a “cautionary tale,” August 4 (Retrievable online at www.cnn.com/video)

Johnson, D. (2011). Fiscal Disasters Like Central Falls’ Are Being Replicated In Cities Across The U.S., Business Insider, Aug. 4 (Retrievable online at http://www.businessinsider.com/fiscal-disasters-like-central-falls-are-being-replicated-in-cities-across-the-us-2011-8)

Rubenstein, J. (2011). Central Falls Bankruptcy Triggers CU Ads, Credit Union Times, August 4 (Retrievable online at http://www.cutimes.com/2011/08/04/central-falls-bankruptcy-triggers-cu-ads)

Watch Out for Junk Fees!

According to this article and a new study by the National Consumer Law Center, many states are shortchanging the jobless by distributing unemployment benefits on debit cards loaded with junk fees. Of the 40 states that have switched from paper checks to prepaid debit cards, 22 states’ cards charge ATM fees, 24 charge balance inquiry fees, and 28 charge inactivity fees. The cards in Arkansas, Idaho, Nebraska, Ohio, and Oregon come with overdraft fees ranging from $10 to $20.

Questions:

1.  According to the article, which bank issued cards are the best?  Which state has the most junk fees?

2. Why do the cards have the fee?  In other words, what is the process for setting up the card structure? How would you consider improving the process?

3.  Discuss the justification for these junk fees.  Do you agree or disagree?

4.  How would these fees be recorded in the accounting records of the banks?

 Source:

Delaney, A. (2011). States Shortchange the Unemployed With Junk Debit Card Fees: Study, The Huffington Post – Business, May 12 (Retrievable online at http://www.huffingtonpost.com/2011/05/11/states-shortchange-the-un_n_860606.html)

Would you pay for online news?

The New York Times began charging online readers Monday for full access to its website and offered a heavily discounted introductory offer intended to lure its first digital subscribers. The Times is offering its three digital subscription plans for the same price of 99 cents for the first four weeks. After that, unlimited access to NYTimes.com and the newspaper’s smartphone application will cost $15 for four weeks while full access to the website and a tablet computer application will cost $20 for four weeks. Full access to NYTimes.com and both smartphone and tablet applications will be $35 for four weeks. The Times believes that those who view 20 articles online during a four week period is the current market for this service. The Times began testing its digital subscriptions in Canada on March 17 and extended the system to the rest of the world on March 28.

Questions:

1.  How do you think they came up with this number, 20 times in 4 weeks?  Would this subscription appeal to you?  Why or why not?

2.  What is it that the company wants to avoid in electing this new business model? In other words, what are the costs and benefits of this model?

3.  How do you think the companies expenses and profit margin will differ between the print and online product? Can you think of other accounting elements that are different between the print revenue model and the online revenue model?

Source:
CNN (2011). New York Times to start charging online, March 28 (Retrievable online at  http://www.cnn.com/video)

Lefkow, C. (2011). New York Times Begins Charging Online Readers, Yahoo! News, March 29 (Retrievable online at http://news.yahoo.com/s/afp/20110329/tc_afp/usitmediaindustrynewspapersinternetnytimes)

What kind of car should you buy?

Do you ever consider the price of insurance before you buy a car?  Well, maybe you should. According to the insurance data company Quadrant Information Services, a new ranking of average premiums for 2011 models is out, based on averaging late December 2010 car insurance rates from six large carriers across 10 ZIP codes in each state.

Questions:

1. The article says that the rankings are based on the premium that a 40-year-old man with a good driving record (no speeding tickets or accident claims), a good credit record and a 12-mile commute would pay annually.  How do these factors impact insurance rates? In your discussion, compare this to risk assessment when performing an audit.   

2.  How do ZIP codes factor into these rates?  Why?

3.  Why do you think that the national average annual premium for the Mercedes-Benz SL65 AMG is 17 percent higher than the cost to insure the most expensive vehicle in last year’s results, which is the Porsche 911 Carrera GT2?

Schultz, J.S. (2011). The Most (and Least) Expensive Vehicles to Insure, The New York Times, February 1 (Retrievable online at http://wheels.blogs.nytimes.com/2011/02/01/the-most-and-least-expensive-vehicles-to-insure-2/?ex=1312347600&en=68b2d4fc6acd5689&ei=5087&WT.mc_id=AU-D-I-NYT-MOD-MOD-M187-ROS-0211-L2&WT.mc_ev=click).

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