Posted by & filed under All Articles, Financial Accounting.

Both Delta Air Lines and Continental Airlines are raising their checked-baggage fees.  According to this article the winners may be package-delivery companies and airlines without such fees. Unfortunately, it is hard to verify the exact numbers through shipping companies, but officials from both Southwest Air Lines and JetBlue Air Lines admit that their lack of checked-baggage fees have bolstered their bottom lines. 


1.  Look at Delta Air Line’s most recent 10-Q (

Where do you think the checked luggage fees are reported in its financial statements?

2.  During the third quarter of 2009, Southwest Airlines reported $2,550 million in passenger revenues and JetBlue Airlines reported $764 million for the same period.  Assuming that their “no checked-bag fees” are responsible for the increased traffic gains reported in November (12% and 7%, respectively) and continue to attract travelers at the same rate throughout the fourth quarter, what additional revenue will the two companies achieve in the fourth quarter?

3.  Assuming that the average traveler checking bags pays a fee of $35, how many travelers on U.S. airlines paid for checked bags in the third quarter (see the total in the article)?


Berr, Jonathan. (2010). “UPS, FedEx Win  When Airlines Charge to Check Bags,” Daily Finance (Retrievable online at

SEC. (2009). Delta Air Lines 10-Q for 3rd quarter 2009. (Retrievable online at

Posted by & filed under All Articles, Fraud Accounting.

Sujata “Sue” Sachdeva, the former vice president of finance and secretary at Koss Corporation, was arrested on December 21, 2009, for allegedly using interstate wire communications to defraud the company. The largest employee theft of 2009 was not detected by the auditors, but in fact resulted when American Express contacted Koss Corp. CEO, Michael J. Koss, and told him that Sachdeva, was paying down her personal American Express balances with large wire transfers from a Koss bank account.


1. According to the Business Journal of Milwaukee, Sachdeva embezzled the following amounts:

2005:  $2,195,477
2006:  $2,227,669
2007:  $3,160,310
2008:  $5,040,968
2009:  $8,485,937
2010:  $10,243,310 (first two quarters)

Now access the SEC’s Edgar System for Koss financial statements (at What percentage of total revenues were the embezzled funds for each of these years?

2. Sachdeva apparently told the FBI that she doctored the company’s bank balance on the books to cover the alleged theft.  Explain a couple of ways that this could have been done through journal entries?

3. Perform some select financial ratios on the 10-Qs and 10-Ks for the period, based on the journal entry methods you speculated in (2) above.  Does anything look out of line?


Anonymous. (2010). Koss: Unauthorized Transactions Increased Over Years, The Business Journal of Milwaukee (Retrievable online at

Kirchen, Rich (2010). Koss Embezzlement Highest of ’09, The Business Journal of Miwaukee (Retrievable online at

Rommell, Rick. (2009). American Express Alerted Koss About Executive’s Spending, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at

Rommell, Rick. (2009). Koss Executive Accused of Embezzling More Than $4.5 Million, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at

Posted by & filed under All Articles, Financial Accounting, Intermediate Accounting.

On January 6, 2010, Walgreen Company, the drugstore giant, announced that it had signed a 10-year contract to outsource its accounting services with Genpact.  Genpact Limited, a spin-off from General Electric in 2005, characterizes itself as a company that has achieved growth from both existing and new clients as companies across industries enacted massive layoffs to trim costs, opening demand for outsourcing companies. In the deal, 500 Walgreen employees will become Genpact employees and Genpact buys the Danville, Illinois accounting facility.  Although details have not been released, about 200 IT employees will be retained and the other 300 jobs will likely be affected over the next six to eighteen months as transitions are made to improve accounting processes.


1. What types of risks do you think that Walgreen Company considered before entering into this arrangement?

 2. Look at Genpact’s most recent 10-Q.  (

(a) Where was Genpact incorporated? 

(b) From reading the 10-Q, do you get a sense of where most of Genpact’s employees are headquartered?

3.   Assume that the facility is being purchased through a noncancellable capital lease over the 10-year contract.  If the facility is being purchased for the fair value of $4.5 million at a 6% implicit annual interest rate, with no residual value, an economic life of 10 years, and equal payments due at year-end, what journal entries would Genpact make for year 1?  

4.  Refer to question 3.  What journal entries would Walgreen make regarding the facility capital lease the first year if the cost of the building is $2.8 million, collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Walgreen?


ET Staff. (2010). “Walgreens, Genpact In 10-year Outsourcing Deal,” The Economic Times (Retrievable online at 

Moss, T. (2010). Danville Accounting Facility Sold To International Firm,” The (Retrievable online at

Posted by & filed under All Articles, IFRS, International Accounting.

A member of the International Accounting Standards Board, James Leisenring, told attendees at the Standard & Poor’s Accounting Hot Topics conference in New York on December 10, 2009, about possible abuses and accounting arbitrage that may result from IASB’s recently issued standard for recognizing and measuring financial instruments. In his remarks, he acknowledged that political pressures had forced the board to publish the standard. In his remarks, Leisenring presented serious reservations about company adoptions of the new standard, IFRS 9, which is the first of a three-part effort to replace the IAS 39 standard on financial instruments. (For an EU perspective, refer to the article by Peter Williams.)


1. Who are the political powers that Leisenring contends were pressuring the IASB? Do you think this happens with FASB processes? Explain.

2. Look at the article by Carver (in particular, the sixth & seventh paragraphs). Leisenring is critical of the “look-through” method of accounting for products like collateralized debt obligations. What are collateralized debt obligations and tranches?

3. Where do collateralized debt obligations appear on the financial statements under U.S. GAAP?


Carver, Laurie (2010). “Abuse of Revised IFRS Standards “Inevitable” – IASB’s Leisenring,” (Retrievable online at

Cohn, M. (2009). “IASB’s Leisenring: Pay No Attention to IFRS 9,” WebCPA (Retrievable online at

Williams, Peter. (2009). “Accounting: IFRS 9 and What It Means For Year-End Reporting,” Computeractive (Retrievable online at

Posted by & filed under All Articles, Auditing.

The Sarbanes-Oxley Act of 2002 increased audit committees’ responsibilities and authority, and raised the bar on the independence of members. As a result, the SEC and the stock exchanges also proposed new regulations and rules to strengthen audit committees. A recent report by the KPMG Audit Committee Institute presents New Year’s guidance for audit committees and their upcoming 2010 agendas.


1. One of the points presented in the article is that audit committees need to monitor management’s assumptions underlying critical accounting estimates. Pension funding is included as one of these priorities. What are some of the estimates that impact pension funding?

2. In the article’s focus on financial communication, audit committees are urged to understand the company’s policy on the use of Twitter and other social media networks to reach investors. How could these networks impact earnings guidance?

3. In particular, the report urges audit committees to engage early on in reviewing 2010 proxy disclosures. What are contained within proxy disclosures?


WebCPA Staff. (2010). “KPMG Lists Top 10 Priorities for Audit Committees,” WebCPA (Retrievable online at

Posted by & filed under All Articles, Financial Accounting, Intermediate Accounting.

More companies are cutting eliminating the acceptance of check payments from their business plans. According to Karen Aho, Whole Foods Markets, Fresh & Easy, and Banana Republic (a brand of Gap, Inc.) are just a few of the companies that refuse checks as payment from customers. According to the Federal Reserve, paying by check has declined by 6.4% since 2003. Financial services consultant, like James Neckopulos, believe that checks will be a thing of the past in 10 years.


  1. The article talks about how “paper costs money.” What are these costs associated with taking checks and where would they be accounted for on the financial statements?
  2. Are there any costs associated with accepting credit card payments from customers? If so, how are these recorded in journal entries?
  3. While some companies cite faster check-out lanes as an advantage of no-check policies, what are the financial advantages of accepting only cash, credit cards, or debit cards? What are some of the disadvantages in terms of customer relations?
  4. Are payments by check reported separately on financial statements? If not, then where?


Aho, K. (2009). Still Use Checks? Join the Dinosaurs. MSN.Money (Retrievable online at

Posted by & filed under All Articles, Intermediate Accounting.

On December 9, 2009, Wal-Mart disclosed that it had settled a long-running wage and hour dispute in Massachusetts for $40 million. According to the Boston Globe, this was the largest wage and hour settlement in the state of Massachusetts. Interestingly, it was just a year ago at the end of 2008 that Wal-Mart reported that it had paid $640 million to settle similar wage and hour violations in 63 federal and state lawsuits.


  1. For SEC and investor purposes, what documents does Wal-Mart release that presents information about the violations?
  2. What are some of the possible wage and hour violations that a company could commit?
  3. How do you think that settlements are recorded in the company’s accounting records?
  4. The article also mentions disclosure of a Philadelphia lawsuit, where a judge ordered Wal-Mart to pay $188 million for a wage and hour violation. Since the case is currently under appeal, should the company accrue the litigation judgment? Explain your answer.


Leder, Michelle. (2009). Wal-Mart Settles Wage and Hour Claims for $40 Million. (Retrievable online at

Posted by & filed under All Articles, Intermediate Accounting.

Every year, Michelle Leder at, takes a look at the worst footnote disclosures that companies try to bury in their routine SEC filings. As her website states, the financial footnotes are important for all users, including professional money managers and analysts, accountants, and individual investors. According to her article, there are a lot of candidates for this distinction, so it is hard to whittle it down to just five.


  1. Take a look at Michelle’s entrants in the article. Then, after 12/31/09, go to her website ( to see who won reader-nominated honor of having the worst disclosure. Do you agree? Why or why not?
  2. What is a retention payment?
  3. How should the retention payment for Martha Stewart be recorded in journal entry (or entries) form?
  4. What is a gross-up?
  5. How should a gross-up for Ross Perot Jr. be recorded in journal entry form by the company granting this concession? (For a hint, see

Ritholtz, B. (2009). 2009’s Worst Disclosures Buried in Footnotes,, December 21 (Retrievable online at

Leder, Michelle. (2009). Voting now open for worst footnote of 2009! (Retrievable online at

Posted by & filed under All Articles, Financial Accounting, IFRS, Intermediate Accounting, International Accounting.

During the week of December 7, 2009, Japan’s Financial Services Agency (FSA) announced that it is moving to the formal adoption of International Accounting Standard (IAS) reporting by 2015. Up until now, the FSA has allowed Japanese companies to file consolidated statements using U.S. GAAP, but in 2015 this may end. The agency will make a final determination about whether to make IAS reporting mandatory in 2012.


  1. Based on this article, what are the major differences between U.S. or Japanese GAAP and IAS?
  2. Approximately what percentage of current firms on the Tokyo Stock Exchange may be affected by this decision for the future?
  3. What are the four major reasons cited by Japanese companies that are considering early adoption of IAS?

Whitten, D. (2009). Shifting the Goalposts: Japan to Adopt New Accounting Rules. iStockAnalyst (Retrievable online at

Posted by & filed under All Articles, Financial Reporting and Analysis, Financial Statement Analysis.

In September 2009, Merck & Co. Inc. announced that they will be the largest drug company to publish details of payments to doctors. The prescription drug industry has met with growing criticism about its lack of disclosure regarding payments that may influence drug prescribing. As the second-largest U.S. drug company, the company vowed to begin publishing regular details in the fourth quarter of 2009.


  1. Based on the dollar amounts listed in the article, why aren’t these listing currently part of GAAP accounting disclosures to the financial statements?
  2. What financial statement(s) would contain these payments?
  3. How do you think these payments are classified (i.e., what account title)?

Jack, A. (2009). Merck to Publish GP Payments. (Retrievable online at