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

Amazon.com Must Anticipate Profits in Diapers & Baby Care Products

Amazon.com Inc. agreed to buy Quidsi Inc., the owner of Diapers.com and Soap.com, for $500 million in cash, expanding in baby-care products and gaining merchandise- management expertise. Amazon will also assume about $45 million of closely held Quidsi’s debt and similar obligations, according to a statement from the companies today. They expect to close the deal in December.

Question:

1. Based on the article, what were the sales for Quidsi last year?
2. Based on the article, what was the U.S. e-commerce market last year?
3. Based on the article, what percent of the U.S. e-commerce market does Quidsi comprise?
4. Based on the information given in the article, discuss the accounting treatment  Amazon will record for the Quidsi acquisition.   

Source:

Galante, J. and Serena Saitto (2010). Amazon.com Agrees to Buy Diapers.com Owner for $500 Million, Bloomberg.com, November 8. (Retrievable online at http://www.bloomberg.com/news/2010-11-08/amazon-com-agrees-to-buy-diapers-com-owner-for-500-million.html)

Mortgage Buybacks

Mortgage Buybacks

According to Standard & Poor’s, the top U.S. banks could face up to $31 billion in losses from buying back bad mortgages. Bank of America Corp and JPMorgan Chase & Co have the most exposure to such potential repurchase obligations, followed by Wells Fargo & Co, Citigroup Inc, US Bancorp and PNC Financial Services Group, according to S&P analyst Vandana Sharma. In partcular, analysts believe that Bank of America has lost so much credibility with investors that the stock’s decline might start feeding on itself.

Question:

1. According to the article, what percentage of losses from mortgage buybacks have the six companies already accounted for?
2. Besides the losses, what reason do analysts propose will lead to decreases in net interest income?
3. Based on Weil’s article, how did Bank of America record the transaction when it purchased Countrywide? 
4. Rewrite Weil’s 1^st paragraph after the “Tipping Point” subtitle, in simple terms, as if you were explaining it to your grandmother or your roommate.

Source:

Staff. (2010). Banks Face $31 Billion Loss on Mortgage Buybacks: Report, Reuters, November 8. (Retrievable online at http://www.huffingtonpost.com/2010/11/04/banks-face-31-billion-los_n_779115.html)
Youtube.com (2010). BofA Under Pressure to Buy Back $47B in Debt (Retrievable online at http://www.youtube.com/watch?v=apMyLwOJ7nU)

Weil, J (2010). Bank of America Edges Closer to Tipping Point: Jonathan Weil, Bloomberg News, Nov. 3.

Put Me First In Line

Former Denver Broncos quarterback John Elway and his business partner gave $15 million to a hedge-fund manager now accused of running a Ponzi scheme.  In court papers filed by Elway and Mitch Pierce the two claim that their investment was supposed to be kept in a separate account from Mueller’s Over Under Fund. Therefore, the Denver Broncos legend is seeking a declaratory judgment for the return of their money, ahead of other investors. Mueller Capital Management has just $9.5 million left to cover liabilities of $140 million.

Questions:

1.  What is a hedge fund?

2.  What accounting guidance for hedge accounting is available under International Financial Reporting Standards (IFRS)?

3.   What accounting guidance for hedge accounting is available from the Financial Accounting Standards Board (FASB)?

4.  As one accountant said of this story: “It’s hard to feel sorry for rich people who play in games without rules (hedge funds).” Do you agree or disagree? Explain.

 

Source:

Staff. (2010) Hall of Famer Elway Seeks Mueller Money Now. FINAlternatives, October 19 (Retrievable online at http://www.finalternatives.com/node/14212).

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