What are you doing in the Summer of 2014?

Country singer Dolly Parton is set to expand her entertainment empire and open a water-snow theme park in Nashville, Tennessee. The 66-year-old launched Dollywood in the Pigeon Forge area of Tennessee in 1986 and added a water park next door in 2001. Now Parton is working on a new addition to her popular attractions and she announced plans for the new $50 million venture on E! online.The new, as of yet unnamed park, will be opened in the Spring or Summer of 2014.

 

Questions:

1.  In general, how would you book the $50 million dollar costs?
2. How should these costs be classified on the financial statements?
3. What is Dolly’s Secret regarding Dollywood?

Sources:

Cnn Video. (2012). Dolly’s New Adventure, Jan. 19 (Retrievable online at http://www.cnn.com/video/#/video/bestoftv/2012/01/19/exp-dollys-new-adventure.cnn)

King, Dennis. (2012) Dolly Parton’s Dollywood Secret. News OK, Jan. 24 (Retrievable online at http://newsok.com/dolly-partons-dollywood-secret/article/3642804)

Insulting Discounts: The Costa Concordia Saga

The owners of the Costa Concordia are offering survivors of the disaster a 30 percent discount off future cruises as they battle to stave off law suits expected to cost hundreds of millions of pounds. As the body of a 12th victim was found inside the hull of the £370 million, 1,000 ft vessel, survivors call the discount offer “insulting.” The most recent victim was found wearing a life jacket on the fourth deck, close to a muster station.

 

Question:

1.  What was the difference between net income for Carnival from 2010 to 2011?

2.  What did Carnival attribute this drop in income to?

3.  What is Carnival’s connection with the Concordia and why is Carnival seeing a downturn in bookings this year?

 

CNN Video. (2012). Carnival Cruise Lines Takes Financial Hit, Jan. 16 (Retrievable online at http://www.cnn.com/video/#/video/world/2012/01/16/pkg-boulden-cruise-ship-business-after-concordia.cnn)

 

Duffin, C., R. Mendick, N. Squires, and V. Ward (2012). Costa Concordia: ‘Insulting’ Cruise Offer to Survivors, The Telegraph, Jan. 24 (Retrievable online at http://www.telegraph.co.uk/news/worldnews/europe/italy/9030212/Costa-Concordia-insulting-cruise-offer-to-survivors.html)

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)

Accounting Error or Change in Estimate?

On November 21, 2011, independent research firm, Gradient Analytics issued a report that questioned whether j2 Global appropriately treated the measurement of annual contacts with eFax customers as a change in estimate. Based on its examination of the j2 Global’s financial disclosures, applicable accounting rules, and limited feedback from the company, Gradient reported that “…the description of the underlying circumstances sounds more like a correction of an error in prior-period financial results.” If those adjustments are appropriately considered an accounting error rather than a change in estimate, a restatement of j2 Global’s 2010 financial reports may be warranted if such errors are considered material under accounting rules.

Questions:

1. In your own words, briefly explain the difference between the treatment of an accounting error and a change in estimate and why it is important for this company.
2. Who is Sam E. Antar, the author of this blog, and why should an accountant recognize him?
3. Look at other articles in Mr. Antar’s blog and briefly summarize one that interests you.

Sources:

Antar, Sam (2011). Should j2 Global Communications Restate its 2010 Financial Reports?, November 22. (Retrievable online at http://whitecollarfraud.blogspot.com/2011/11/should-j2-global-communications-restate.html)

Michalowisc, M. (2011) Video: Biggest Accounting Mistake #2. (Retrievable online at http://www.toiletpaperentrepreneur.com/videos?tubepress_page=3)

Biggest Accounting Mistake #2 from Obsidian on Vimeo.

Shadow Work: How does it affect the Economy?

Shadow work is a term coined 30 years ago by the Austrian philosopher and social critic Ivan Illich. For Dr. Illich, shadow work was all the unpaid labor — including, for example, housework — done in a wage-based economy. The conventional wisdom is that America has become a “service economy,” but actually, in many sectors, “service” is disappearing. Not too many years ago, a gas station attendant would routinely fill your tank and even check your oil and clean your windshield and rear window without charge, then settle your bill. Today, all those jobs have been transferred to the customer: we pump our own gas, squeegee our own windshield, and pay our own bill by swiping a credit card. Many examples exist, helping drive unemployment rates. As the article explains, shadow work can be paid or unpaid.

Questions:

1. Give some examples of shadow work that you perform each week and estimate how much it would cost a company to pay someone to do this as part of their job. How would this affect the Wages and Salaries Expense and profit for a company?

2. According to the article, what is the downside of shadow work? Give examples and discuss.

3. According to the article, what are the benefits of shadow work? Give examples and discuss.

Source:

Lambert, C. (2011). Our Unpaid, Extra Shadow Work. The New York Times, Oct. 29 (Retrievable online at http://www.nytimes.com/2011/10/30/opinion/sunday/our-unpaid-extra-shadow-work.html?pagewanted=1&_r=1&ref=opinion)

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/)

The Aftermath in Japan

The Tokyo Electric Power Co. on Friday reported a net loss of 1.2 trillion yen ($15.4 billion) for the fiscal year that ended March 31. Tokyo Electric also announced it will decommission reactors Nos. 1-4 at Fukushima Daiichi and has also canceled plans to build two other reactors at the site. In addition to the company’s earnings, Tokyo Electric president Masataka Shimizu announced his resignation Friday, which must be approved by the board of directors at a June meeting.

A restructuring plan was announced to boost company finances and help create more than a trillion yen in savings. The Fukushima Daiichi plant has faced a series of setbacks since a magnitude 9.0 earthquake and tsunami struck on March 11. The disasters triggered a glitch in the plant’s cooling system, and caused radiation to leak.

Questions:

1. Based on the video and the article, how much compensation is being made to some of the families directly affected by the tragedy?
2. Under IFRS, how would these payments be accounted for?
3. What is the anticipated total compensation projected?
4. What measures is the company taking to make up losses?

Source:
Lah, K. and Wakatsuki, Y. (2011). Tokyo Electric reports $15 billion net loss after earthquake, tsunami, CNN.com (Retrievable online at http://www.cnn.com/2011/BUSINESS/05/20/japan.tokyo.electric.earnings/index.html)
CNN.com Video (2011)., TEPCO Reports Massive Losses, May 20. (Retrievable online at www.cnn.com/videos)

Have you thought about being an entrepeneur? Here is a new twist!

When Rent the Runway, a New York start-up hoping to make high-end fashion as accessible as renting a movie from Netflix, first introduced its service in late 2009, it wasn’t clear how successful the venture would be. In the past 18 months, since Rent the Runway came out of its beta testing phase, it has enticed a million members to join the service. Each week, another 40,000 new members sign up, the company said. The company has raised $16.5 million from venture capitalists, and grown from a few employees to 51 staffers, prompting a move to larger offices in downtown New York.

1.  Assume that the company rents two dresses a year to each member.  If the dresses rent for $50 and variable costs are $20 per rental and the company’s fixed costs for the year total $1,620,000, how many dresses must be rented in order for the company to break even? 

2. Assume that during the current year Rent the Runway reported total revenues of $891,640 and profit of $91,486.  Fixed costs were $332,043, and 44,000 dresses were rented.  If costs and prices are expected to stay the same next year, but the company expects to increase rentals to 50,000 dresses, what will be the company’s budgeted profit?

3. From an entrepreneurial standpoint, do you think this plan would work for any other type of product? Explain.

Source:
Fox Business Video (2011). Rent the Runway: Designer Dress Rental Catching On, Fox Business News.com February 8 (Retrievable online at http://video.foxsmallbusinesscenter.com/v/4529267/rent-the-runway/)

Wortham, J.(2011) Rent The Runway Takes Flight, The New York Times, May 2 (Retrievable online at http://bits.blogs.nytimes.com/2011/05/02/rent-the-runway-takes-flight/?ref=business)

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)

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)

Next Page »