People: The Number One Asset

What radical thinking! Cashiers barred from interacting with customers until they have completed 40 hours of training? Hundreds of staffers sent on trips around the U.S. and world to become experts in their products? No mandatory retirement age? Never laying off workers? All profits reinvested in the company or shared with employees? This is the Wegman model, as a $6.2 billion-a-year, 79-store-supermarket chain with cult-like loyalty among its customers.

Questions:

1. Can you buy shares of stock in Wegman? Discuss.
2. How many stores does the company open per year? Why?
3. Wegman’s vice-president says that “Our employees are our number one asset.” So where are employees listed on the financial statements? Discuss.

Source:
Rohde, D. (2012) The Anti-Wal-Mart: The Secret Sauce of Wegmans is People, The Atlantic, March 23 (Retrievable online at http://www.theatlantic.com/business/archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-is-people/254994/#.T3Eu451pn0M.mailto)

Big News at Amazon: Fulfillment Robots

Amazon.com Inc said on Monday it agreed to buy Kiva Systems Inc for $775 million in cash, a deal that will bring more robotic technology to the e-commerce company’s giant network of warehouses.

Questions:

1. What other companies use this kind of robot technology?
2. Discuss the trend of Amazon’s fulfillment costs and what they would mean in terms of net income and taxes.
3. Discuss in general how Amazon would account for the $775 million acquisition and the types of journal entries it would make.

Source: Barr, A. (2012). Amazon’s Kiva Systems Acquisition To Put Robots To Work, Reuters.com, March 19 (Retrievable online at http://www.huffingtonpost.com/2012/03/19/amazoncom-kiva-acquisition_n_1365512.html)

Embrace Change

Kodak, the 131-year-old film pioneer, filed for bankruptcy protection last month. News got worse this week when the company announced they would stop doing what they were the first to ever do – manufacture digital cameras. Then on Feb. 15, Apple asked a bankruptcy court for permission to sue Kodak for patent infringement, resulting from Kodak’s efforts to import printers and digital camera.

Questions:

1. Why did the video say that this should be a business school case study?
2. What specific signs should Kodak have recognized as roadmarks for change?
3. What is Kodak’s strategy going forward under bankruptcy protection? Discuss what other avenues you believe Kodak could take going forward.
4. If Apple is successful, how should the company account for any proceeds gained from the patent infringement lawsuit?

Source:

The New York Times video.(2012). Kodak Declares Bankruptcy, Jan.19 (Retrievable online at http://video.nytimes.com/video/2012/01/19/business/100000001296658/kodak-declares-banruptcy.html)

Passikoff, R. (2012). No More Kodak Moments. Forbes.com, Feb. 13 (Retrievable online at http://www.forbes.com/sites/marketshare/2012/02/13/no-more-kodak-moments/)

Reuters staff. (2012). Apple Inc. has asked a bankruptcy court for permission to sue Eastman Kodak, accusing it of infringing its patents. Reuters.com, Feb. 15 (Retrievable online at http://www.reuters.com/article/2012/02/16/us-apple-kodak-idUSTRE81F05V20120216)

Super Bowl Sunday!

Well it’s almost time for the Super Bowl again.  So get the snacks ready in front of the big screen TV.  But what comes with the game and half-time?  Of course, the commercials.  However, the hoopla behind Super Bowl ads has spawned a team of skeptics. Growing research shows the $3.5 million that advertisers pay for 30 seconds during Sunday’s game between the New England Patriots and New York Giants often isn’t worth the cost.

 

Questions:

1.  What companies are lined up to advertise on the Super Bowl 2012?

2.  Why does the article say that companies would be better off advertising somewhere else?

3. How would you record, in the accounting records, the $3.5 M paid to a network for airing a Super Bowl ad?  Are there any other costs other than the airing costs?  Discuss what they are and how you would record them in the accounting records.

Source:

Dicker, R. (2012). Super Bowl: Are Ads Worth the Millions? The Huffington Post, Jan. 31 (Retrievable online at http://www.huffingtonpost.com/2012/01/30/super-bowl-are-ads-worth-_n_1241677.html?ref=business)

The Cost of Sweet Music

Manuel Rodriguez III owns the century-old family business of the same name, heir to a tradition of guitar manufacturers which dates back to 1905 when his grandfather gave up fishing in Cadiz to dedicate his life to his musical passion. Now the Spanish guitar factory is looking beyond Europe to keep the company competitive.

Questions:

1. According to the video, by what percentage has the workforce been reduced by in the Spanish factory? How does this compare to the percentage quoted in the article? What does Manuel attribute this reduction to?
2. Discuss the processes Manuel discusses in terms of cost accounting, both at the Spanish and China factories, and how these impact the company’s costs.
3. Based on the figures given in the article concerning the lower range guitars, construct an annual income statement.

Sources:

Castellanos, C and C. Ruano. (2011) Spanish Crisis Won’t Silence Manuel Rodriguez Guitars, Reuters.com, Apr. 7 (Retrievable online at http://uk.reuters.com/article/2011/04/07/uk-spain-guitars-idUKTRE73641V20110407)

CNN Videos. (2011). Spanish Guitar Factory Eyes Investment, Dec. 8 (Retrievable online at www.cnn.com/videos)

The Volcker Rule

Regulators released a proposal on Oct. 11 known as the Volcker Rule, which is aimed at overhauling how the banking industry carries out its trading activity. The proposal, spanning about 300 pages, includes provisions that scrutinize how banks collect revenue, award compensation and track their compliance with the Volcker Rule.

According to financial industry lawyers and lobbyists these will challenge the very nature of Wall Street.

Questions:

1.  What is the Volcker Rule?  Specifically, explain the revenue provision focus. Do you think this regulation is needed?  Why or why not?

2. The proposal spells out an expansive internal control regime that banks must adopt, creating layers of expensive and time-consuming compliance.   Can too much internal control be a bad thing?  Discuss in general.

3. Do you agree with Sullivan & Cromwell, who say: “The combined effect of these conditions could have a highly adverse impact not only on foreign banks, but on the position of the United States as a financial center.”   Why or why not?

Source:

Protess, B. (2011) With Volcker Rule, Wall Street Braces for Change, The New York Times, Oct. 11(Retrievable online at http://dealbook.nytimes.com/2011/10/11/with-volcker-rule-wall-street-braces-for-change/?ref=business)

New Banking Fees

Customers are frustrated by new controversial fees from banks. However, they are finding out that it is not so easy to disentangle your life from your bank.

Questions:
1. What does the article list as the main reason(s) that customers will stay with a bank, even though they are unhappy about new fees?
2. Which accounts at Bank of America will not carry the new fees? Why do you think those have been chosen?
3. How do you think the banks will record these fees in their general ledger? Give the assumed journal entry.
4. The article said,” Studies commissioned by Fiserv using data from SunTrust and Wachovia in 2007 and 2008 emphasize how online banking and e-bills reduce customer turnover while substantially raising profits per customer.” Does this statement help support or refute the need for increased fees? Discuss your reaction to the video.

Source:
Schwartz, N.D. (2011). Online Banking Keeps Customer on Hook for Fees, The New York Times, Oct. 15 (Retrievable online at http://www.nytimes.com/2011/10/16/business/online-banking-keeps-customers-on-hook-for-fees.html?_r=3&hp)

The Cost of Financial Ignorance

In Hernando de Soto’s very interesting commentary, he expands Federal Reserve Chairman Ben Bernanke’s thoughts that the U.S. needed to “re-learn some of the lessons” that have led to success among emerging market economies. The bulk of his commentary focuses on the reliability of accounting records that guarantee or make credit trustworthy, including the deeds, titles, liens and other documentation that establish who owns what and how much, and who holds the risks.

Questions:

1. Was there any place in the article where de Soto mentioned something that sounded like the monetary unit assumption that provides a foundation for the accounting process? Were there any other assumptions or principles of accounting that he used in his commentary or could be inferred? Explain.

2. Relate de Soto’s article to the accounting equation.  Based on this what is the premise of his article?

3. Explain what de Soto means by the statement “Information on debts is passed to the ledgers of ‘special-purpose entities’ (SPEs) – think Enron, which had more than 3,000 SPEs — or swept into illegible footnotes. “   What are SPEs? Briefly explain how Enron used them in perpetrating one of the nation’s largest frauds.

Source:

Hernando de Soto (2011). The Cost of Financial Ignorance., Washington Post, Oct. 7 (Retrievable online at http://www.washingtonpost.com/opinions/the-cost-of-financial-ignorance/2011/10/03/gIQAEU3yTL_story_1.html

Groupon in the News

Groupon disclosed a major accounting change on Friday, essentially halving its once-jaw-dropping revenue after it encountered resistance from regulators with its filing to go public. Groupon, the online coupon titan, announced separately that its chief operating officer of about five months, Margo Georgiadis, resigned and will return to her former employer, Google, as president of the Americas.

Questions:

1. What was the accounting change mentioned? Was it a violation of GAAP?

2. What effect did it have on the financial statements?

3. What is the SEC quiet period mentioned in the article, how long is it, and what is its purpose?

Source: De La Merced, M.J. and E.M. Rusli (2011). Accounting Change Cuts Groupon’s Revenue. The New York Times – DealBook, September 23 (Retrievable online at http://dealbook.nytimes.com/2011/09/23/groupon-changes-its-revenue-accounting/)

Bank of America and Loan Modifications

 

Many Americans have applied for the federal government’s loan modification program, meant to keep them in their homes. Instead, less than a quarter of those who signed up have gotten any help. The banks are being sued by several states and consumer class action lawsuits for their failure to follow through. If you research this more, you find that Bank of America has an incredible number of violations and suits pending against the company. One of these is from the Utah man in this video, Michael Waters, who has decided to represent himself after no attorney would take on the case because “the bank’s pockets are too deep.”

Questions:

1. What is HAMP? Find an article that talks about Bank of America and its involvement with HAMP.

2. Briefly describe Michael Waters suit against Bank of America. What technicality has he been able to use, to keep this case alive? What is meant by “deep pockets”?

3. Explain the journal entries that a bank would make in the modification of a loan.

Source:

You tube.com. Michael Waters Versus Bank of America, March 7, 2011. http://www.youtube.com/watch?v=fNUZ98l7cC0&feature=player_embedded#at=159

Next Page »