Lunch Money Fraud

How low can you go? Otis Josey, a 54-year old Detroit man, allegedly told a pre-school girl that he worked at a radio station and was raising donations for a children’s hospital charity. In exchange for a donation, he would give the donor a gift card. Police say he literally cheated the 5-year old girl out of her $5 lunch money in exchange for a fake $20 gift card to Chuck E. Cheese.

Questions:

1. Read the article by Ray Martin. What is one of the most reported gift card scams?
2. What does Martin recommend that you should do with an unwanted gift card?
3. How do most companies recognize the revenue from gift cards? What journal entries are involved?

Sources:

NBC Video.(2012). Man accused of selling child fake Chuck E. Cheese gift card, NBC News, April 26 (Retrievable at http://video.msnbc.msn.com/nbc-news/47178295/#47178295)

Martin, R. (2011). Attention Shoppers: Avoid this Gift Card Scam. CBS News, December 15 (Retrievable online at http://www.cbsnews.com/8301-505145_162-57343690/attention-shoppers-avoid-this-gift-card-scam/)

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

Fed Up with Scorched-Earth Tactics

A lot of people and companies are upset with Amazon these days. At the end of February, The Educational Development Company (EDC) announced that it would remove all of its titles from the online retailer’s listings because of their predator selling practices. Amazon would buy EDC’s books from a distributor and discount them to the bone. The problem is that this creates problems with other retailers who want to carry the company’s titles, as well as with EDC’s network of independent sales agents, who market its books from their homes.

Questions:

1. According to the article, what other company removed its e-books from Amazon?
2. Assume that you own a small publishing company. Do a cost/benefit analysis of selling books on Amazon. Discuss your results in terms of short-term and long-term profitability.
3. Explain how you think that EDC sales model with its 7,000 “consultants” might work and how they record their revenue for these type of sales.

Source:

Streitfeld, D. (2012). Daring to Cut Off Amazon. The New York Times, April 15 (Retrievable online at http://www.nytimes.com/2012/04/16/business/media/amazons-e-book-pricing-a-constant-thorn-for-publishers.html?_r=1&hp)

Christmas Cheer Backfires

Tyrone Newman decided to celebrate Christmas after he finally got a job and kept it for one year. Unfortunately, the Northeast Washington, D.C. maintenance man ended up spending his $1,500 mortgage payment on Christmas gifts. Not wanting to tell his wife that he had no way to pay the mortgage, he got several loans from a payday lender. Newman made $16.50 per hour at his job and whenever he tried to pay ahead on the loans, the lender discouraged him. His three $500 loans would cost $6,000 each if paid off in one year.

Questions:

1. Based on the amounts in the article, estimate whether it would be possible for him to pay off one $500 loan a year, if his expenses were $2,000 per month (using his salary only).
2. Discuss the legality of these types of loans. How was Newman able to get out from under the loans?
3. Look up the FTC case (www.ftc.gov) against payday loans in South Dakota and summarize the issues.
4. What are the journal entries that the payday lender would make for the 1st 2 months, assuming that Newman did not make a payment until month 3.

Source:

Dvorak, P. (2012). “Payday Loan Disaster: A Holiday Splurge Leads to a 651% interest rate,” The Washington Post, March 8 (Retrievable online at http://www.washingtonpost.com/local/payday-loan-disaster-a-holiday-splurge-leads-to-a-651percent-interest-rate/2012/03/08/gIQA9nMOzR_story.html?hpid=z3

Prospects for Pandora

Internet radio’s popularity is growing, through smartphone apps and cars that allow smartphone owners to stream Web-served radio through Bluetooth wireless connections. However, this article indicates that there are bad times ahead for this company and the industry.

Questions:

1. What is Pandora’s share of the total U.S. radio-listening market?
2. What does the article indicate as the problem with the internet radio market?
3. By what percentage did Pandora miss Wall Street revenue projections for Pandora’s most recent quarter?

Source:

Munarriz, R.A. (2012). Why Pandora Will Never Be Great Again. Daily Finance, March 7 (Retrievable online at http://www.dailyfinance.com/2012/03/07/why-pandora-will-never-be-great-again/)

Coinstar and Self-Service Retailing

Coinstar is a company that was founded just over two decades ago by Jens Molbak, who as a Stanford University graduate student, realized there wasn’t an easy way to spend the spare change piled up in a jar on top of his dresser. Since that time the company has become known for its Redbox kiosks, its movie rental subsidiary. Redbox has largely overshadowed its parent company’s broader ambitions to reinvent vending machines by applying them to new categories of retailing.

Questions:

1. What percentage of Coinstar’s revenue came from Redbox last year?

2. Based on the percentage of Redbox’s investment in Verizon’s online movie services, how should this be accounted for in Redbox’s financial statements?

3. According to the article, Coinstar has about eight or nine kiosk ideas in various stages of development. In general, how should the company account for these?

4. In 2009, Redbox signed Sony to $460 Million distribution agreement, which was a five-year deal that guarantees that the studio would provide DVDs to the kiosk rental company. How do you think Redbox accounted for this agreement? How do you think Sony accounted for this agreement?

Source:
Wingfield, N. (2012) Thinking outside the Redbox. The New York Times, Feb. 17 (Retrievable online at http://www.nytimes.com/2012/02/18/business/coinstar-ventures-beyond-its-redbox-success.html?_r=1&ref=business)

Chose Me

Have you ever wondered how some people get chosen to be profiled on a commercial? You may have seen the American Express Gold Card commercial featuring Sammy’s Fish Box, Sam Chernin’s flagship restaurant on City Island in the Bronx (one of five eateries he currently owns). Most small businesses would like to be featured on this type of very professionally produced commercial for the free publicity (rather than the low-budget commercials they can afford), but it may not be that easy.

As the author of this article explained, maybe Sammy was chosen because he had obtained millions of rewards points through his purchases of supplies for the business. But she later discovered that it requires much more than just using a product. As American Express’ chief marketing officer explained, AMEX looks for business owners who not only use their products to help businesses grow, but do this in an especially unusual way that may influence other business owners.

Questions:
1. Since this commercial began airing, how much have the restaurants’ revenues increased?
2. If Mr. Chernin exchanged his rewards points for cash, how should he account for the cash?
3. How should Mr. Chernin account for the rewards points that he exchanges for trips for his employees?

Source:

Fisher, A. (2011). Entrepreneur gets credit-card star treatment. Crain’s New York Business.com, March 25 (Retrievable online at http://mycrains.crainsnewyork.com/blogs/executive-inbox/2011/03/entrepreneur-gets-credit-card/)

Youtube.com Sammy’s Fish Box (Retrievable online at youtube.com)

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)

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