Salute to Tax Day

According to Adam Davidson (et. al), if economists ran the tax system, there would be virtually no exemptions or loopholes. But instead, he submits, businesses, rich people, Congressmen and attorneys spend a shockingly large amount of time lobbying for tax breaks or exploiting the loopholes that exist. The tax code in 1913 was 27 pages long and has grown to 5,296 pages as of last year.

Questions:
1. According to Mr. Davidson’s (et.al) survey, what is the easiest way to cheat on your taxes? Discuss.
2. Discuss what you found to be the most interesting deduction that a taxpayer attempted to take and why.
3. According to the article, what percentage of taxes did the IRS collect in 2006. If the 14% shortfall amounted to $385 billion, how much in dollars did the government collect in 2006?
4. What was the reason for the shortfall in collections?

Source:

Davidson, A., J. Goldstein, C. Kenney, and D. Kedmey. (2012). What’s the Easiest Way to Cheat on your Taxes. The New York Times, April 3 (Retrievable online at http://www.nytimes.com/2012/04/08/magazine/whats-the-easiest-way-to-cheat-on-your-taxes.html?src=me&ref=magazine)

Check out the Change in the Beer Industry!

The U.S. beer market is in the midst of a transition. Smaller, micobreweries are taking market share from global giants like Anheuser Busch InBev, which has a 47 percent share of the U.S. beer market. These smaller companies target discerning, and often affluent, customers who are the foodies of the beer world.

Questions:

1.  According to the article, what are the demographic characteristics of the typical craft beer buyer?
2. What is the strategic trend for the larger global breweries?
3. Discuss the P/E ratios and dividend yields mentioned in the article and explain what they mean.

Source:

Randall, D.K. (2012) Super Bowl 2012: Microbrews Make A Run At Big-Time Beer Makers, Feb. 3 (Retrievable online at http://www.huffingtonpost.com/2012/02/05/super-bowl-microbrews-make-run-big-time-beer-makers_n_1253285.html?ref=business)

Do you think they will notice if we understate the numbers a little?

The Securities and Exchange Commission capped a three-year investigation into Fannie Mae and Freddie Mac on Friday, filing securities fraud charges against six former executives at the government-sponsored mortgage giants. The SEC claims that the execs failed to disclose the full extent of their companies’ subprime loan exposure. However, the outcome of the cases could depend on what exactly is considered a subprime loan, with one defendant already arguing that there’s no standard definition.

Questions:

1. By what percentage did the Freddie Mac executives understate the amount of the company’s Single Family Guarantee business that was exposed to subprime loans in June 2008?
2. By what percentage did the Fannie Mae executives understate the amount of the company’s “Alt-A” loans?
3. What does a 10-Q filing with the SEC present?
4. Explain why most of these SEC settlements are set up with the language “without admitting or denying liability?” Do you believe this is a good thing?

Source:

Li, V. (2011). SEC Suits Against Fannie Mae, Freddie Mac Execs Turn on Subprime Loan Definition, Law.com, Dec. 20 (Retrievable online at http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202536066304&SEC_Suits_Against_Fannie_Mae_Freddie_Mac_Execs_May_Turn_on_Subprime_Loan_Definition)

Hands2Go: Looking at the Numbers

According to Francine Glick, whose Livingston (N.J.)-based hand sanitizer company, Water Journey, LTD, is on pace to hit $40 M in sales in five years, a network of support is invaluable: “You’re running this race, and it’s not how fast you run or how hard you prepare. It’s all those people cheering you on.” Take a look at her recent pitch and see what you think.

Questions:

1. Ms. Glick indicated that she needed funding of $2 million for a facility, research and development, working capital and additional staff. Make a realistic journal entry that Water Journey would make to record this transaction, assuming that the venture capitalists are sold on this investment. Indicate what assumptions you made.

2. Ms. Glick indicated that the venture capitalists would receive an ROI of 40%. What amount would this be, based upon their $2M investment, for the first year? How is ROI calculated?

3. Summarize the positive points made during Ms. Glick’s brief video pitch. What did the article indicate was the most difficult problem that entrepreneurs face?

Sources:

MSNBC Video. Elevator Pitch: Hands2Go. October 26, 2011 (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/27265816#27265816)

Tossi, J. (2007). The Million-Dollar Club, Business Week, June 22 (Retrievable online at http://www.businessweek.com/smallbiz/content/jun2007/sb20070622_876606.htm?chan=search)

Visit msnbc.com for breaking news, world news, and news about the economy

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)

 

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.

Made in America

More than 60 billion sets of chopsticks are produced every year in China, so you’d have thought they would be making enough. But a chopstick shortage is growing in the Far East, prompting a U.S. company in Georgia to start exporting millions to the country. Georgia Chopsticks is producing an incredible two million sets of the utensils every day, reported the Daily Telegraph.

Questions:
1. What type of woods is the company using to make the chopsticks?
2.  Assume that the company owns its own land with these trees on it and harvests the raw materials for the chopsticks.   Explain how should the company should record the land and account for the trees in its accounting records.
3. If Georgia Chopsticks currently produces 2 million sets of chopsticks a day and wants to export 10 million pairs a day by the end of the year, what percent increase is that in their production?

Source:
Duell, M. (2011).  U.S. exporting millions of chopsticks to China as wood shortage grows in Far East, Mail online, August 4 (Retrievable online at http://www.dailymail.co.uk/news/article-2022211/US-exports-chopsticks-China-Georgia-producing-utensils-wood-shortage-grows.html)

Yahoo video, Georgia Company Exports Chopsticks to China (Retrievable online at http://news.yahoo.com/video/us-15749625/georgia-company-exports-chopsticks-to-china-25959962.html)
 

 

Are you considering homeownership? A “Must Read” study!

Of the 50 most populated cities in the United States, New York remains the city where it’s better to rent than buy. The Big Apple’s competition? Fort Worth, Texas. According to Trulia, an online real estate resource, buying a home has become more affordable than renting an apartment in 80 percent of major cities. Besides New York and Fort Worth, only in Kansas city is renting the preferable option. This is right behind other cities including Memphis, Los Angeles and San Francisco.

 Questions:

 1. What was the comparison that Trulia used in all the markets it looked at in terms of apartment size? Can you see any problems with the methodology it used, based on the article? 

 2. Find a house that you would be interested in buying and then try the rent or buy calculator at http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=1&oref=slogin.  What is the most important thing that you found out when using this tool?

 3.  Look at the AGBeat article and its tables regarding the Trulia data.  Pick a city in the Price:Rent Ratios table with the biggest Quarter-Over-Quarter Movement in Favor of Homeownership.  What factors do you think are leading to these results for the specific city you chose?

Sources:

Staff (2011). Where It’s Better To Rent A Home Than Buy: Trulia, Huffington Post, April 29 (Retrievable online at http://www.huffingtonpost.com/2011/04/29/housing-rent-buy-trulia-prices_n_855688.html)

Staff (2010). Is it Better to buy or rent?, New York Times, April 21 (Retrievable online at http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=1&oref=slogin)

Staff (2011). Trulia Rent versus Buy Index reveals Homeownership to be most Advantageous, AGBeat News.com, April 29 (Retrievable online at http://agentgenius.com/real-estate-news-events/trulia-rent-versus-buy-index-reveals-homeownership-to-be-most-advantageous/)

Way to go Detroit!

Chrysler has turned its first profit since leaving bankruptcy two years ago. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday. The profit is a milestone in Chrysler’s long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

Questions:

1. What percentage of revenues is Chrysler’s profit?

2.  According to the article, what factors led to this profit?

3. The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

3. (a) According to the article, Fiat SpA gave Chrysler a vote of confidence when it said it will spend $1.3 billion to raise its stake in the American company. That will increase Fiat’s holdings from 30 percent to 46 percent. Based on this information, how much is Fiat paying for each percent of Chrysler that it buys?

(b) The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

(c) Based on your answer in 3(a) and 3(b), what is the current market value of the U.S. holdings in Chrysler?  

Source:

Durbin, Dee-Ann (2011). Chrysler Posts First Profit Since Bankruptcy, Huffington Post, May 2 (Retrievable online at http://www.huffingtonpost.com/2011/05/02/chrysler-profit_n_856215.html)

The Poster Boy in a Different Type of Pennant Race – Time for a Reality Check

Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. A little-known tax abatement program, known as the “421A” program, has existed for decades, which grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing. Although the program ended in December for any new construction, the city’s powerful real estate industry is determined to get it renewed and even get it expanded.

Questions:

1.  What percentage of A-Rod’s income would he pay if assessed the full tax bill of $60,000?

2. What percentage of A-Rod’s income is the $1,200 he currently pays under the tax abatement program?

3. If $900 million are lost to this program per year and the average salary of a firefighter or teacher is $50,000, how many jobs could be saved by the reform of this abatement?  If you assume that A-Rod’s full tax bill ($60,000) is the average for those who have taken this advantage, approximately how many people benefit from the discount?  Compare these two calculations and discuss.  

4.  Are there any issues that you could use to argue that the abatement program should be reinstated? 

Source: Gonzalez, Juan. (2011). Tax Breaks on Real Estate Deals for People Like A-Rod Cost City $900M a Year, New York Daily News, February 25 (Retrievable online at http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29)

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