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).

Mickey D’s in the News: Which story is right?

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

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Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

Best Selling Candy

Candy is big business.  While international giants such as Mars Inc., Nestlé, and Kraft dominate the industry, there is still room for smaller, regional players like South Africa’s Tiger Brands and China’s Hsu Fu Chi International, with each country having a No. 1 candymaker. Even though chocolate remains the most popular candy in the world, chewing gum is growing rapidly. As this article speculates, the reason behind gum’s growth is due to tougher anti-smoking campaigns and aggressive pushes by manufacturers into new markets.

Questions:

1.  What is the number one best-selling candy and how much were its annual U.S. sales in 2007?   Which country eats the most chocolate per capita?  How much is it and how does it compare with the U.S.?

 2.  Why can’t you find a 10-K for Mars Inc. on the Web?

3.  Based on the article, what percentage of the total candy market is accounted for by M & M’s?

 

Source:

Deprez, E. (2009) What are the World’s Most Popular Candies? BusinessWeek, June 24 (Retrievable online at http://www.businessweek.com/globalbiz/content/jun2009/gb20090624_590587.htm#readerComments)

Deprez, E. (2009). The World’s Best Selling Candies (slide show), BusinessWeek, June 24 (Retrievable online at http://images.businessweek.com/ss/09/06/0624_worlds_best_selling_candy/1.htm)

Happy Birthday! Microsoft is 35 years old!

From modest beginnings, Microsoft, started by college dropout Bill Gates, gave birth to an entire
industry, changing the way we live and work and became one of the largest software companies on the
planet. As this article points out, not everything has been notable during its history. In particular, look at
this parody video of Clippy, the cute but much maligned animated paper clip introduced with Office 97.
Microsoft turned off the Clippy feature by default in Office XP, promoting it as part of a $30 million
marketing campaign, and removed it altogether in Office 2007.

Questions:

1. What type of journal entry or entries do you think that Microsoft make for the $30 million campaign to silence Clippy?

2. The article talks about Microsoft’s surprising investment when in August 1997, rival company Apple desperately needed cash. Microsoft came to their rescue and bought $150m in stock. What do you see as the reasons for this event?

3. What journal entries do you think Apple would have made in the exchange mentioned in Question 2?
What journal entries would Microsoft have made?

Sources:

YouTube Video. (2006) Annoying Microsoft Paperclip, November 23
(Retrievable online at http://www.youtube.com/watch?v=1zr2-_ap4O8)
Sanjay. (2010) Happy 35th Birthday Microsoft, Access India, August 27.
(Retrievable online at http://www.mail-archive.com/accessindia@accessindia.org.in/msg40506.html)

What’s up with Hulu?

According to the New York Times, Hulu is approaching investment banks to underwrite an IPO this fall valuing the company at $2 billion. What is Hulu? Hulu is an online video service that offers a selection of hit shows, clips, movies, and more at Hulu.com and numerous destination sites online and across four screens — PCs, TVs, mobile phones and tablets.
Questions:

1. Based on Yarrow’s article, draft a simplified income statement for Hulu in 2009. Assume a year-end of December 31.

 
2. What is an IPO? Why does Atkinson see problems ahead with this?

 
3. How does Hulu generate revenue? What accounts do you think would be associated with this business model?

Source:
Yarrow, J. (2010). Hulu Wants To IPO At A $2 Billion Valuation, Business Insider SAI, August 16. (Retrievable at http://www.businessinsider.com/hulu-ipo-2010-8)

Atkinson, Claire. (2010). Hulu Faces Hurdles to Stock Offering. New York Post, August 17. (Retrievable online at http://www.nypost.com/p/news/business/hulu_faces_hurdles_to_stock_offering_2O1mh3F3PhtbXXbyrQ7QoO)

Saving Money through Social Media

The recession has bred a new type of coupon: the group coupon. In recent months, several Web sites have launched nationwide giving customers discounts on restaurant meals, sporting events, spa treatments, golf outings — pretty much any expenditure that many people give up during economic downturns. The catch is that the coupon only applies if a certain number of people use it.

Questions:

1.  After watching the video and accessing http://www.groupon.com, explain the company’s business model. 

2. Do you think that the group coupon trend will continue?  Why or why not?

3.  Go to the “recent deals” in your area at http://www.groupon.com.  Pick one of the deals. If you were a company offering this deal and using the services of Groupon, what accounts would be affected by the  deals you provide?

Sources:

Eklund, Kevin. (2010) Best Social Group Buying Sites For Killer Daily Deals And Deep Discounts. Tomuse.com (Retrievable online at 

http://tomuse.com/group-buying-sites-coupon-deals-discount-savings/#ixzz0wt6rxlKihttp://tomuse.com/group-buying-sites-coupon-deals-discount-savings/)

Trejos, Nancy (2009). The Humble Coupon Joins Social-Media Web, The Washington Post, September 1 (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2009/08/31/AR2009083103837.html)

CNN Video. (2010). Group Coupon Business Soars, August 13. (Retrievable online at  http://www.cnn.com/video/#/video/tech/2010/08/13/am.group.coupon.business.cnn?iref=videosearch)

Who are the most trustworthy companies and why?

Who can you trust? 

In a recent examination by Audit Integrity, an independent financial analytics company in Los Angeles, the company assessed the true quality of corporate accounting and management practices by looking at more than 100 factors beyond the balance sheet and income statement. Their aim was to identify the measures most highly associated with fraud and to quantify the risks of drops in stock prices, that could force managers to restate financials or could potentially result in securities lawsuits. Audit Integrity has back-tested its proprietary metrics to 1996 to establish correlations between corporate behavior and negative events. Audit Integrity’s measures have been used over the past seven years by institutional investors, insurers, auditors, regulators and corporations to identify risk.

Questions:

1. How many public companies typically make Audit Integrity’s Most Trustworthy Companies list?

2. What industry or region of the country has a concentration of the most trustworthy companies?

3.  Who are the companies with the most impressive records and why?

4.  Speculate on what metrics are used by Audit Integrity and list at least 10 factors that would be important to include.

Source:

Weinberg, N. (2010). The Most Trustworthy Companies. Forbes.com, August 6 (Retrievable online at http://www.forbes.com/2010/08/05/most-trustworthy-companies-personal-finance-audit-integrity.html?partner=daily_newsletter)

New Revenue Recognition Standards on the Way for Contractors

Contractors should be educating themselves on the impact of the new proposed revenue recognition standards and the recently published (June 24, 2010) exposure draft pertaining to revenue from contracts with customers. Public comments are due October 22, 2010, and it is expected the standards will be finalized in 2011.

Questions:

1. What are some of the significant changes in this standard that will affect contractors?

2. How will the proposed standard define the economic unit of measure?

3. Explain what the new cost of capitalization rules will mean for contractors.

 

Source:

Henderson, J. (2010). Proposed Revenue Recognition Rules Would Significantly Affect Contractors, BKD Alerts, June (Retrievable online at http://www.bkd.com/industry/Construction-RealEstate/Insights/2010/2010-06alertsCRE-1.htm)

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