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)

A Good Deal?

Show them the money and you, too, could live at The Plaza in New York City! Life at the city’s storied hotel is kush no matter what, but this newest listing is giving new meaning to the high life. Curbed directed our attention to the Astor Suite, a four-bedroom, six-bath rental, which is currently being offered for $165,000 per month. Yes, that makes it New York’s most expensive rental on the market.

Questions:

1. If as the video indicated, the apartment is worth $55M today, what percent of the value is the owner willing to accept in annual rent? How does this compare to the rent to value ratio of an average furnished apartment in your area?

2. Assuming that the owner’s renovations were $5M, what percentage annual return will the owner receive on his investment, if he is able to sell it for $55M? How would he record the journal entry?

3. Based on the square footage stated in the article, what is the sales price per square foot? Look online and find a home with similar square footage that is furnished and discuss how it compares. What are some of the qualitative differences that the buyer be paying for in The Plaza apartment, as compared to the one you found for sale online?

Source:

Zeveloff, J. (2011). At $165,000 A Month, This Is The New Most Expensive Apartment Rental In New York, Business Insider, Dec. 8 (Retrievable online at http://www.businessinsider.com/most-expensive-apartment-rental-new-york-astor-suite-plaza-2011-12)

Knutsen, E. (2011). Only at the Plaza Could They Charge $165,000 a Month for An Apartment, The New York Observer, Dec. 8 (Retrievable online at http://www.observer.com/2011/12/only-at-the-plaza-could-they-charge-165000-a-month-for-an-apartment/)

CNN Video, New York’s Most Expensive Rental, Dec. 15

Tickets, Anyone?

Ticketmaster’s various fees and surcharges, which sometimes add 40 percent or more to the cost of a ticket, have long infuriated its customers. But next year, thanks to a recent class-action settlement, many of those fans will be able to get some money back.

Questions:

1. According to the article, what are the two types of credits that will be offered to people who bought tickets on the Ticketmaster Web site from Oct. 21, 1999, to Oct. 19, 2011?
2. Are there any limitations to the credits?
3. Explain how Ticketmaster will likely make the journal entries for these claim amounts.
4. What is the minimum payment that Ticketmaster faces per year over the four-year life of the settlement? What happens if individuals do not claim their credits?

Source:

Sisario, B. (2011). Ticketmaster Offers Credits to Settle Lawsuit. The New York Times, Dec. 2 (Retrievable online at http://mediadecoder.blogs.nytimes.com/2011/12/02/ticketmaster-to-offer-redress-for-fees/?scp=2&sq=ticketmaster&st=cse)

Kenya Life Companies

Many countries are making a mint from commodities such as oil, copper and gold thanks to sky-high prices. But is that enough to give Africa a permanent boost? Probably not, because commodity markets are notoriously fickle and revenues can quickly be squandered.

According to a report by the African Development Bank, a third of Africans are now “middle-class”, defined as having between $2 and $20 to spend a day. A decade ago that was true of only a quarter of Africans. This change has occurred in a period of fast population growth among low-income families. This video talks about what some middle class Kenyans are now spending their money on.

Questions:

1.What were some of the benefits for Kenya of having a strong and vibrant insurance sector, as mentioned in the video?

2. What were some of the risks associated with the growing industry of insurance?

3. What is driving the rise of life insurance in Kenya? What are the challenges?

4. What type of journal entry should an insurance company make to account for a whole life policy, where part of the premium goes to investment?

Sources:

CNN Video. (2011). The Business of Death, November 28. (Retrievable online at www.cnn.com/videos)

Staff. (2011). Pleased to be bourgeois. The Economist, May 11 (Retrievable online at http://www.economist.com/node/18682622)

The Big Bank of America Settlement

On November 7, 2011, a federal judge gave final approval to a $410 million settlement in a class-action lawsuit affecting more than 13 million Bank of America customers who had debit card overdrafts during the past decade.  The settlement became final a week after Charlotte, N.C.-based Bank of America backed off a plan to charge a $5 monthly fee for debit-card purchases. The outcry prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel trial tests of their own debit card fees.

 

Questions:

1.  Although the judge awarded $410 Million in the suit, what percentage did Barry Himmelstein, an attorney for customers, anticipate was the actual amount collected by Bank of America for the overdrafts?

2.   Explain how the suit claimed that Bank of America maximized these fees.  Give an example that includes 5 overdraft incidences.

3.  Make the journal entry for Bank of America for the settlement, including amounts to be paid to the class-action lawyers.

Sources:

Associated Press Staff (2011). Judge Approves $410 Million Settlement of Lawsuit Against Bank of America On Overdraft Fees, Nov. 7 (Retrievable online at http://www.washingtonpost.com/national/judge-mulling-over-410-million-settlement-in-bank-of-america-overdraft-lawsuit/2011/11/07/gIQACKjZuM_story.html)

Youtube video (2011). Bank of America Agrees in Overdraft Fee Lawsuit to Pay $410 Million (Retrievable online at http://www.youtube.com/watch?feature=player_embedded&v=1Ov6QBMStt8)

Slinky: Imitated but never duplicated

Other manufacturers have tried and failed to duplicate the classic toy, which is why every Slinky sold in the world is still made in the U.S.A. It is estimated that more than 250 million Slinky’s have been sold worldwide.

Questions:

1. In which city are Slinky’s made according to the video?
2. How was the Slinky discovered?
3. What year was the company acquired from Betty James? What was the average seniority of the workforce when acquired? Based on this, would you assume that the company had a low or high unemployment tax rate? What effect does employee turnover have on unemployment taxes for employers?
4. Research the Slinky. (see http://inventors.about.com/od/sstartinventions/a/slinky.htm) Why is it considered such an entrepreneurial success story? Where did the name come from? What was the turning point for the company’s success? What was the original investment in the company? If you were recording the original investment, what journal entry would you make for the James Spring & Wire Company?
5. If you assume that the number sold was an equal amount of the total each year since 1945 and the average price was $3, what is the amount of total revenues over the period and annually?

Sources:

Bellis, M. (2011) History of the Slinky Toy, About.com (Retrievable online at http://inventors.about.com/od/sstartinventions/a/slinky.htm)

CNN staff (2011) Slinky: Imitated but Never Duplicated, CNN Money, Nov. 1 (Retrievable online at http://money.cnn.com/video/smallbusiness/2011/11/01/smb_hwgs_slinky.cnnmoney/)

Rhode Island Nearly Broke?

The current general treasurer of Rhode Island, Gina Raimondo, warns that the state will soon be broke due to its debt problems. After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers and that figure will climb perilously toward 20 cents. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent; the real number for the last decade is about 2.4 percent. This article explains some of the challenges facing the state and Ms. Raimondo.

Questions:
1. How many reform plans has Rhode Island tried to institute since 2005 to fix the pension system? Do you agree with Ms. Raimondo’s approach? Why or why not?
2. Who did Ms. Raimondo learn was investigating the state and city finances of Rhode Island, as soon as she was sworn in? Why were they investigating?
3. What do the percentages in the article refer to in terms of the calculations made to calculate pension expenses? How do these changes affect the amount of pension expense?
4. In recent months, Ms. Raimondo has crisscrossed the state trying to sell a different plan that would allow the pensions to survive and avoid additional plans within the next couple of years. What type of pension structure is she trying to save? Explain this structure and whether or not it is the most common type for most companies.
5. The article mentioned that when the board voted to lower the projected long-term investment return assumption to 7.5 percent, the state’s pension shortfall instantly rose to $9 billion from $7 billion. Make the journal entry to show this effect.

Source:
Walsh, M.W. (2011) The Little State With a Big Mess. The New York Times, Oct. 22 (Retrievable online at http://www.nytimes.com/2011/10/23/business/for-rhode-island-the-pension-crisis-is-now.html?src=me&ref=business)

Typos cost businesses money

Websites could be losing millions in online sales because of poor spelling and grammar. This is because Internet users are becoming more wary of scams which are typically riddled with errors and are then reluctant to make purchases on websites. As the BBC reported in July 2011, Charles Duncombe, an Internet entrepreneur based in the United Kingdom, measured the revenue per visitor to the tightsplease.co.uk website and found that the revenue was twice as high after an error was corrected. Typos affect not only online sales, but sizable contracts in all lines of business.
Questions:
1. Which example presented in the article was your favorite?
2. What are typosquatters? Explain how people make money from this concept.
3. What journal entry would Google make for the revenue it makes associated with typosquatters?

Sources:
CNN videos. Typos cost millions in online revenue, Oct. 14 (Retrievable online at www.cnn.com)
Wooten, A. (2011). Million dollar typos cause worldwide losses, Deseret News, Oct. 7 (Retrievable online at http://www.deseretnews.com/article/705392032/Million-dollar-typos-cause-worldwide-losses.html)

“Gettysburg” Debt

Ron Maxwell, the director of two acclaimed Civil War movies, has not repaid a $300,000 loan from 2002 to Washington County Maryland and county officials aren’t happy with the pace of his repayments. The loan, which came with a 4.5 percent annual interest rate, was supposed to be paid off in 2010. However, the Herald-Mail newspaper of Hagerstown, Maryland reports that Maxwell still owes $263,041 in total. Furthermore, Maxwell hasn’t made a payment on the loan since June 2008, county officials told the paper.

Questions:

1. Based on the article, how much interest would Maxwell owe if he paid off the loan by December 31, 2011, assuming that he last paid on the loan on June 1, 2008?

2. Using the information in question 1, assume that Maxwell completely pays off the debt on December 31, 2011.  What journal entry would he make for his production company?

3. How much principal has Maxwell paid on the loan, based on the information in the article?  Based on your answer, how much has he paid annually toward principal, assuming a straight-line basis?

4. Compare your answer in Question 3 to an estimate of what you think he has made on the films since their release. If you were his accountant, does it seem reasonable that he has not paid the loan back yet?  Explain whether this will help or hinder his lawyers’ positions. What do you believe the outcome will be?

5. Do you think the loan is accounted for using the straight-line or effective interest rate method? Why?

 

Source:

Staff. (2011). Film Director owes Washington Co. Hundreds of Thousands, NBC News, Oct. 15 (Retrievable online at http://www.nbcwashington.com/news/local/131920608.html)

YouTube.com Video. Gettysburg And Gods and Generals Trailer. (Retrievable online at http://youtu.be/WFLH6wwGbdE)

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)

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