M’Hudi Winery

A clinical psychologist, her ‘armchair farmer’ husband and their family launched an internationally successful wine label — without capital, farming experience or wine-making knowledge. The company is the first South African winery wholly owned and managed by a Black South African family.

Question:

1. How did the Rangaka’s decide on their particular farm? Discuss the costs or benefits of this approach?
2. How long did it take before the farm was producing a drinkable wine? How did Malmsey keep the winery afloat financially during the early years?
3. From a strategic perspective, does naiveté usually benefit a new entrepreneur? How does the article contend that this helped in this particular case?
4. One hectare is equivalent to 2.47 acres and the Rangaka’s have 21 hectares that produce 14,000 cases (12 per case) of wine per year. If the average price of 6 bottles is $52.38, what is the winery’s total revenue per year?

Source:

Pitman, J. (2011). M’hudi Wines: Malmsey Rangaka, Entrepreneur Magazine: South Africa, Dec. 14 (Retrievable online at http://www.entrepreneurmag.co.za/advice/women-entrepreneurs/women-entrepreneur-successes/m%E2%80%99hudi-wines-malmsey-rangaka/)
CNN Video. (2012). A Family of Winemakers. Jan. 30 (Retrievable online at www.cnn.com/videos).

First-Class Travel Has Never Been So Good, For Those Who Can Afford It!

Though first class represents less than 5 percent of all seats flown on long-haul routes, and business class accounts for 15 percent, those seats combined to generate 40 to 50 percent of airlines’ revenue, according to Peter Morris, the chief economist at Ascend, an aviation consulting firm. After its merger with Continental last year, United Airlines kept its first-class cabin only on some international routes that used to be served by United but not on those flown by Continental. It is also installing new flat-bed seats across its fleet in business class.

Questions:

1. According to the video, what was the price of a coach seat versus a business class seat versus a 1st class seat on a flight from the U.S. to Zurich, Switzerland?
2. Based on your answer in #1, assume that a plane going to Zurich has 230 coach, 50 business seats, and 20 first-class seats? What would be the gross revenue?
3. Based on your answer in #2, what would the expenses be in order to achieve a 50 percent net revenue?
4. How many times more is a first-class seat as compared to a coach seat, based on your answer in #1?
5. Discuss how you think an airline decides to configure its seating options. What is the linkage between this type of decision and cost or managerial accounting?

Source:
Mouawad, J. (2011). Taking First-Class Coddling Above and Beyond, The New York Times, Nov. 20 (Retrievable online at http://www.nytimes.com/2011/11/21/business/taking-first-class-coddling-above-and-beyond.html?pagewanted=1)

Video. (2011). In First Class, A World Apart, New York Times Video (Retrievable online at http://video.nytimes.com/video/2011/11/21/business/100000001182807/in-first-class-a-world-apart.html)

PPM: What does it stand for when funding is involved?

The abbreviation PPM stands for many things, including parts per million. But what does PPM stand for if you are an entrepeneur that is interested gaining funding for your business? When a company is looking to raise funds without an initial public offering, a private placement memorandum (PPM) is one of the best ways to raise capital. A company must have the consent of the Securities Exchange Commission (SEC) before this can be done, and will need an information memorandum along with the PPM. Because of the complexity of SEC rules and documentation, it is highly advised to seek a knowledgeable attorney to help throughout this process.

Questions:

1.  What are the sections in a PPM?

2.  What should be the length of a PPM?

3. When Mike on the video talks about the internal route of raising funds, from an accounting standpoint, what is comparable to the Use of Funds table that he presents? Do you agree or disagree that all new companies can follow the model that Mike presents using Dell as an example?

4. If you presell like the Dell example in the video, how would you make the journal entries for the products that you sell? Give an example problem.

Sources:

Spotora, A. (2011). Los Angeles Business Attorney Emphasizes the Importance of Private Placement Memorandums, Spotora Blog (Retrievable online at http://www.spotoralaw.com/2011/11/los-angeles-business-attorney-emphasizes-the-importance-of-private-placement-memorandums/)

Michalowisc, M. (2011) Video: On A Roll- Raising Funds For Your Business (Retrievable online at http://www.toiletpaperentrepreneur.com/videos?tubepress_page=15)

Geonzon, M. (2011) Private Funding Technique And Practical Information On Small Enterprises. Articles Corp., Nov. 24 (Retrievable online at http://articlescorp.com/business/venture-capital/private-funding-technique-and-practical-information-on-small-enterprises)

On A Roll- Raising Funds For Your Business from Obsidian on Vimeo.

Wal-Mart Banking

As Americans become more fed up with banks, who are they turning to to protest against Wall Street and outsized fees? The answer surprisingly is Wal-Mart. Customers cash work and government checks, pay bills, wire money overseas or load money on to a prepaid debit card for generally a low fee like $3, as compared to a percentage charged at check cashing companies or higher per transaction fees at banks. Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it.

Questions:

1. According to the article, what is the price differential for prepaid debit cards at Wal-Mart, as compared to other retailers? If you assume that 650,000 people shift to Wal-Mart from other retailers, what is the savings?

2. What issue(s) was Richard Hunt, president of the Consumer Bankers Association, concerned with as a result of Wal-Mart’s increased activity into financial transactions? Do you agree or disagree with Mr. Hunt? Discuss.

3. According to J.P. Morgan analyst, Tien-tsin Huang, why is Wal-Mart’s financial transaction market growing faster than the normal model for check cashing services? What added strategic advantage of financial transactions at Wal-Mart is seen for the retail giant?

Source:

Martin, A. and S. Clifford. (2011). High Bank Fees Give Wal-Mart a Money Aisle. New York Times, Nov. 7 (Retrievable online at http://www.nytimes.com/2011/11/08/business/wal-mart-benefits-from-anger-over-banking-fees.html?pagewanted=1&_r=2&hp)

Eneslow Shoes: Change is Good!

Eneslow – The Foot Comfort Center was founded in 1909 and is a family owned business providing high quality, stylish and comfortable shoes, as well as therapeutic accessories, on-site shoe makeovers and repairs and custom-made footwear. When New York State dropped Medicaid support for orthopedic shoes, Robert Schwartz saw his business drop by nearly 50%. As a result, he sought counsel and closed seven out of eight of the company’s stores in 1989. He used this as an opportunity to reposition the company’s products and now avoids the perception of being an “old ladies store.”

Questions:
1. What were some of the key costs that Robert Schwartz probably eliminated in repositioning his store? What are some costs that Schwartz probably could not eliminate in the downsizing of his operations?

2. Schwartz mentioned that he went to a mentor/counselor about the downturn in his business. What type of services could you provide him as a CPA regarding increasing his business?

3. What was the old model that Eneslow followed? What is the new model according to the video?

4. Go to Eneslow’s website at http://www.eneslow.com/home.cfm Does the company still have one store? What are the most interesting/favorable things that you notice about the company’s website?

Source:

MSNBC Video. (2011). If the Shoe Fits, Your Business (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/25142886#25003452)

Eneslow website, http://www.eneslow.com/home.cfm.

Visit msnbc.com for breaking news, world news, and news about the economy

HAPPY HALLOWEEN: 1-800-Autopsy

As hospitals and municipalities around the country cut back on the costly service of providing autopsies, family members of the deceased who feel there are unanswered questions that could be resolved by a post-mortem investigation are not without recourse. Today, only about 5 percent of all hospital deaths are autopsied, which is down 42 percent from 1965, according to Archives of Pathology and Laboratory Medicine. Therefore, private autopsy firms are moving in to fill the void.

Questions:

1. Go to the website http://www.1800autopsy.com/.  What services does this company provide? What business model structure did Herrera follow in 2005? Do you agree/disagree that
there is a need for this type of service? Discuss.

2. According to the WSJ article, what fees are typically charged for the autopsies?  Based on this article and the website, what types of accounts do you think Herrera would have as part of his chart of accounts?

3.  According to the WSJ article, what mistakes does Suzanna Dana explain should be avoided in this type of business, as well as for other first-time entrepreneurs?

Sources:

Staff. (2010). Demand Breathes Life into Private Autopsy Companies, Wall Street Journal, October 14 (Retrievable online at http://www.1800autopsy.com/articles/189-demand-breathes-life-into-private-autopsy-companies.html)

MSNBC Video, A dying business? Hardly, Oct. 26 (Retrievable online at http://www.msnbc.msn.com/id/13561213/ns/business-small_business/)

Visit msnbc.com for breaking news, world news, and news about the economy

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)

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/)

Tax Breaks Galore in Video Games

The United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels, but also to video game producers. They are able to combine tax breaks across software development, the entertainment industry, and online retailing for a bonanza effect.

Electronic Arts, founded in 1982, has since become one of the world’s dominant video game companies, producing popular titles like SimCity, FIFA soccer, Harry Potter, and Madden NFL, largely due to huge tax incentives.

Questions:

1. Discuss why you think that Union Carbide failed to meet the experimental threshold for the R & D credit, though video game makers often seem to have little trouble meeting the requirement.

2. What was the most interesting point made in this article that pertains to you as an accountant? Do you agree or disagree with the tax incentives that the video game industry has been able to capitalize on? Discuss.

3. Do you agree or disagree with video game industry officials that say by improving technology, they are indirectly helping society at large? Why or why not?

Source: Kocieniewski, D. (2011). Rich Tax Breaks Bolster Makers of Video Games, The New York Times, Sep. 10 (Retrievable online at http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?_r=2&nl=todaysheadlines&emc=tha2)

More evidence of the wealth divide

Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price. In July, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year.

Questions:

1. According to the article, Tiffany’s first-quarter sales for 2011 were up 20 percent to $761 million, as compared to last year. Based on this information, what were the last year’s first quarter sales?

2. According to the article, in 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, a $2,495 pair of suede boots costs $2,495 .  What percentage increase is that?

3. What is the snob factor?  What is your reaction to this article? Which comment to the article is your favorite and why?

4. If, as the article said, consumers awaited 70 percent discounts rather than buying right away and we assume that a luxury item was priced at $3,300, how much would the consumer pay?  

Source:

Clifford, S. (2011) Even Marked Up, Luxury Goods Fly Off Shelves, The New York Times, Aug. 3 (Retrievable online at http://www.nytimes.com/2011/08/04/business/sales-of-luxury-goods-are-recovering-strongly.html?src=ISMR_AP_LO_MST_FB)

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