Return Fraud

Return fraud costs the retail industry billions of dollars in lost revenues every year. The growing crime is expected to cost retail stores across the nation an estimated $3.7 billion this holiday shopping season alone, according to the National Retail Federation. If that estimate holds true, it will represent 35 percent increase over last year’s $2.74 billion loss for the holiday period.
Questions:

1. What is wardrobing? What factors do you think increase this type of fraud? Discuss.
2. What is price arbitrage? What factors do you think increase this type of fraud? Discuss.
3. What internal controls do you think are the most effective in combating return fraud? Discuss in terms of costs and benefits.  Why don’t all retailers have a no return policy to combat this fraud?

Source:
CNN.com Video. (2010). Fake returns: A $14 Billion Crime, December 18 (Retrievable at http://www.cnn.com/video).
Turner, Kevin. (2010). Merchants Are Watching For Return Fraud. Jacksonville Florida Times-Union, December 19 (Retrievable online at http://jacksonville.com/business/2010-12-19/story/merchants-are-watching-return-fraud)
Six.Wise.com Staff. (2007). The Biggest Crime You’ve Never Heard Of—Return Fraud—And How The Criminals Do It, Six.Wise.Com Newsletter, January 7 (Retrievable online at http://www.sixwise.com/newsletters/07/01/17/the-biggest-crime-youve-never-heard-of—-return-fraud—-and-how-the-criminals-do-it.htm)

What Does It Cost To Make An Apple IPhone4?

According to market research firm, Apple’s iPhone 4 wireless handset components cost about  $187.51. The iPhone 4 sells for $199 and $299. The most expensive component is the LG display that costs $28.50. According to the consultant, the iPhone has typically hovered around the $170-to-$180 cost range because Apple seems to be trying to hit some kind of budget.

Questions:

1.  According to the article the firm that put this information together used a teardown analysis.  What is this?

2. What are some of the reasons that Apple would put together this $170-to-$180 cost point budget?

3.  What is the markup on the gyroscope chip? What percent of the total part cost is the display?

4.  What percent profit is made on the iPhone 4 as compared to the iPhone 3GS?

Source:  Hesseldahl, A. (2010). Apple iPhone 4 Parts Cost About $188, Bloomberg Businessweek, June 28 (Retrievable online at http://www.businessweek.com/technology/content/jun2010/tc20100627_763714.htm?link_position=link1)

Donated Inventory

Over the next five years, Wal-Mart plans to donate about 1.1 billion pounds of food to food banks and provide $250 million to help them buy refrigerated trucks, improve storage and develop better logistics.

The plan to contribute $2 billion in cash and food to the nation’s food banks is considered to be one of the largest corporate gifts on record.

Wal-Mart began taking on hunger as a cause in 2005, when it distributed 9.9 million pounds of food to food banks; last year, it provided 116.1 million pounds of food. The company also has donated the services of its staff to help food banks improve lighting and refrigeration, and develop ways to increase the amount of fresh food on their shelves.

Questions:

1.According to Robert Midler, when are merchandisers eligible for enhanced deductions for a charitable contribution of inventory under the U.S. tax code?  Would Wal-Mart’s effort qualify?

2. Using the video, can you identify which accounts of a merchandiser would be affected when making the journal entries for donated inventory? 

3. Assuming that Wal-Mart’s revenue on the donated food would be $1.5 Billion, its cost would be $0.875 Billion, $250 million was donated for trucks and $250 million was donated through services of Wal-Mart staff, create the journal entries for the cash merchandise and service donation for the financial statements.

Source:

Midler, Robert (1993). Tax benefits of donating inventory – some donations may also qualify for enhanced deduction.The Tax Adviser, January 1 (Retrievable online at http://www.allbusiness.com/accounting-reporting/corporate-taxes/351023-1.html)

Strom, Stephanie (2010). Wal-Mart donates $2 billion to food banks, New York Times, May 13. (Retrievable online at http://www.postbulletin.com/newsmanager/templates/localnews_story.asp?z=7&a=452224)

Nerdenterprises.  (2010). “Accounting For Donated Inventory In QuickBooks video,” May 4 (Retrievable online at http://www.youtube.com/watch?v=B9-N2ZmUMhs)

Are Things Improving for Sears Holding Corporation?

In the third quarter of 2009, Sears Holding Corporation narrowed its losses from $146 million in the previous quarter to $127 million. Despite this, shares of Sears’ stock have almost doubled during 2009.

QUESTIONS:

1. The article mentioned that because of inventory management, the company’s gross margin widened by 0.4 percentage points to 27.2%. What are some of the things that were done? Explain how each of these examples you cited would affect the financial statements?
2. The article mentioned that Sears cut $101 million of selling, general and administrative expenses. Where does this appear in the financial statements?
3. One of the things that Sears has done to increase sales is to bring layaway back to its K-Mart stores. Explain how revenue recognition works in a layaway situation, where a deposit is required to hold merchandise at the store until it is fully paid for. Include journal entries, where possible, in your explanation example.

SOURCE: Cheng, A. “Sears Loss Narrows As it Controls Inventory, Expenses,” Wall Street Journal – Market Watch (Retrievable online at http://www.marketwatch.com/story/sears-loss-narrows-on-cost-controls-2009-11-19)