Debt for Life?

Posted by & filed under Accounting Principles, Advanced Accounting, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting.

Here are the facts. Four-year college graduates’ pay advantage over high school grads has doubled over the past 30 years. However, in 2010, student debt exceeded credit-card debt for the first time and in 2011, it surpassed auto loans. In March 2012, the Consumer Financial Protection Bureau announced that student debt had passed $1 trillion and there are predictions that student debt will be the next crisis bubble to burst.

Questions:

1. Do you agree or disagree that student loan debt is “good debt”? Why or why not?
2. Do you agree or disagree with the statement “Education benefits society by creating a workforce that creates wealth, pays taxes, and stays off welfare”?
3. What was the most interesting fact presented in the article? How was it applicable to you?

Source:

Coy, P. (2012) Student Loans: Debt for Life. BusinessWeek, Sep. 6 (Retrievable online at http://www.businessweek.com/articles/2012-09-06/student-loans-debt-for-life#p1)

Money Market Funds: A Safe Bet?

Posted by & filed under Accounting Principles, Advanced Accounting, Cost Accounting, Financial Accounting, Intermediate Accounting, International Accounting, Managerial Accounting.

Should we risk another 2008 financial meltdown? The answer is no. However, late last month the Securities and Exchange Commission (SEC) abandoned efforts to impose new regulations on money market funds intended to prevent another panic like the one that occurred then. Because money market funds are typically invested in short-term, low-risk assets (like United States Treasuries and highly rated commercial paper), they are considered to be ultra safe investments, as well as mainstays of all the major mutual funds. However, when Lehman Brothers collapsed and their commercial paper became worthless, this set off a frenzy where funds were frantically trying to unload commercial paper and other assets to raise cash and major corporations, relying on commercial paper for day-to-day operations,found themselves unable to issue new securities. The Treasury and Federal Reserve officials came to the rescue and backed money-market fund assets in their entirety by the full faith and credit of the United States, but vowed not to do it again.

Questions:

1. By what percentage does the money market bailout dwarf the TARP bailout?
2. What are the implications, if the Treasury and Fed had not acted?
3. What are the two major reforms that the SEC proposed to prevent this from happening again?
4. Why do you think the SEC abandoned these reforms?

Source:

Stewart, J.B. (2012). Influence of Money Market Funds Ended Overhaul. The New York Times, Sep. 7 (Retrievable online at http://www.nytimes.com/2012/09/08/business/sorting-out-the-collapse-of-new-rules-for-money-market-funds.html)

Outlasting Resources: Unchartered Medicaid Territory

Posted by & filed under Accounting Principles, All Articles, Cost Accounting, Financial Accounting, Managerial Accounting.

The presidential election may decide the fate of Medicaid’s future. Faced with rising Medicaid costs and budget deficits, many states are already trying to cut the cost of long-term care by significantly changing Medicaid coverage, through the use of federal waivers. To be eligible for Medicaid, a person must spend down so that they have no more than $14,800 in assets. Medicaid spends more than five times as much on each senior in long-term care as it does on each poor child, and even more per person on the disabled in long-term care. Republicans propose block grants that would end the federal oversight role for Medicaid, cutting spending by a third over a decade, changing minimum eligibility requirements, as well as standards of care, and also federal rules that now protect adult children from being billed for their parents’ Medicaid care.

Questions:
1. According to the article, what was the rate that Rena Lull depleted her lifetime savings of $300,000?
2. Research nursing home daily rates. How do they compare with the $250 per day home where Rena Lull resides? Is her rate average, below average, or above average?
3. Some long-term care facilities allow healthy seniors to plan ahead by paying a large down payment to secure their lifetime living arrangement and then pay a monthly maintenance fee when they enter the facility. Find one of these facilities and estimate how much money a 60-year old individual would have to have to make this work until age 90. What are the upside and downside risks with this type of arrangement?
4. Would you be prepared to be billed for your parents’ care in a nursing home? What do you see as the costs and benefits of block grants as compared to the current system?

Source:
Bernstein, N. (2012). With Medicaid, Long-Term Care of Elderly Looms as a Rising Cost. The New York Times, September 6 (Retrievable online at http://www.nytimes.com/2012/09/07/health/policy/long-term-care-looms-as-rising-medicaid-cost.html?_r=1&src=un&feedurl=http%3A%2F%2Fjson8.nytimes.com%2Fpages%2Fhealth%2Fpolicy%2Findex.jsonp)

The Business Model of Overstating Benefits: How Harmful or Ethical?

Posted by & filed under Accounting Principles, Advanced Accounting, Auditing, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Video Updates.

It is estimated that between 50,000 to 100,000 patients died or had a heart attack as a result of taking the drug Advandia. For seven years, GlaxoSmithKline (GSK) failed to report data that indicated Advandia increases the risk of heart attack by 40%. As we reported back in July, in the biggest health care fraud settlement in US history, a federal judge approved a fine totalling $3bn for criminal and civil violations by the British pharmaceutical giant, GSK. This video provides additional critical discussion regarding the ethics of this situation.

Questions:
1. What was unusual about the suit against GSK? What were the consequences of the criminal charges?
2. How should GSK record the outcome of the suit in their financial records?
3. Do you think that drug companies put profits before patients? Why or why not?
4. Discuss the ethics of building in drug health risks into market expectations.
5. What was the most surprising fact that you learned about the drug industry from this video?

Source:
Aljazeera video (2012). GlaxoSmithKline fraud case: Does Crime Pay? Inside Story Americas, July 10 (Retrievable online at http://www.aljazeera.com/programmes/insidestoryamericas/2012/07/201271084038662313.html)

Are you Suspicious? Maybe you should be!

Posted by & filed under Accounting Principles, All Articles, Auditing, Fraud Accounting, Uncategorized.

A few years ago, Todd Rutherford was part of the marketing department at a company that provided services to self-published writers. These services included persuading traditional media and blogs to review the books. Then he realized that there were not enough reviewers to go around. So he started a website, GettingBookReviews.com, which eventually earned him more than $28,000 per month in supplying reviews to blogs and other media. He soon found that not just any kind of review will do. They needed to be somewhere between enthusiastic and ecstatic.

Questions:

1. What happened to Mr. Rutherford’s plans for a multimillion-dollar review business? Should there be prosecution for this?
2. After reading this article, how could you ensure that a review was from an individual not paid for their service?
3. Should there be more policing of reviews or perhaps audits by firms that supply them? What are the costs and the benefits and who are the stakeholders?

Source:

Streitfeld, D. (2012). The Best Book Reviews Money Can Buy. The New York Times, August 25 (Retrievable online at http://www.nytimes.com/2012/08/26/business/book-reviewers-for-hire-meet-a-demand-for-online-raves.html?hpw&pagewanted=all)

Private Equity Firms and A Tax Strategy Investigation

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, Intermediate Accounting.

Eric Schneiderman, the New York attorney general, is investigating abusive tax strategies at some of the nation’s largest private equity firms. As part of these efforts, last week, he subpoenaed documents from more than a dozen firms hoping to uncover conversion of certain management fees collected from their investors into fund investments, which are taxed at a far lower rate than ordinary income.

Questions:
1. Based on this article, do you think the practice is legal or illegal and why or why not?
2. The article talked about some firms that could have chosen to implement this strategy but decided against it. Explain the quote of one lawyer who said: “Other [firms] may not have the operational capabilities to handle the complex transactions.”
3. Explain Mr. Fleisher’s statement at the end of the article: “There is a tension between economic risk and tax risk that is supposed to be inversely proportional.” How does it pertain to the legality of the issue?

Source:
Confessore, N., J. Creswell, and D. Kocieniewski (2012). Inquiry on Tax Strategy Adds Scrutiny of Finance Firm. The New York Times, Sep. 1 (Retrievable online at http://www.nytimes.com/2012/09/02/business/inquiry-on-tax-strategy-adds-to-scrutiny-of-finance-firms.html?_r=1&hp)

Coming to a store near you: What are the cost and benefits of good health?

Posted by & filed under Accounting Principles, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Intermediate Accounting, Managerial Accounting.

Hy-Vee is the only grocery chain in the country that posts a registered dietitian in almost every one of its 235 stores. In rural areas, some of its more than 190 dietitians serve a cluster of stores. By doing this it capitalizes on growing consumer awareness of the role food plays in health and wellness and to find new ways to fend off competition from specialty markets like Whole Foods and big-box stores like Walmart. Other regional chains like Meijer, Giant Eagle, Bashas’ and H-E-B also have them, and bigger grocery stores are getting involved in addressing these needs, too.

Questions:

1. What is the dietitian’s role in the stores?
2. According to Andy McCann, senior vice president for retail health at Hy-Vee, it is very difficult to calculate a financial return on the company’s investment in the staff of dietitians. If you were tackling this task, what would you include?
3. What are the benefits and costs to consumers of having this service available in the grocery stores?
4. If you had a choice between a Hy-Vee with this service and a big-box store like Walmart, which would you choose? Why?

Source:

Strom, S. (2012). Employing Dieticians Pays Off for Supermarkets. The New York Times, August 24 (Retrievable online at http://www.nytimes.com/2012/08/25/business/dietitians-pay-off-for-supermarkets.html?src=me&ref=business)

Interesting Educational Strategy

Posted by & filed under Accounting Principles, All Articles, Cost Accounting, Financial Accounting, Managerial Accounting.

At U.S. colleges, like NYU and Northeastern, some freshmen are beginning their studies abroad during their first and even second semesters. According to Bloomberg, the strategy is one used by universities to enroll larger classes and get more tuition dollars. How? The universities use the students and their tuitions to fill the beds of midyear dropouts and upper classmen heading overseas.

Questions:
1. Which program at NYU is following this model?
2. What are the costs and benefits to student and their parents who accept this arrangement with the universities mentioned in the article?
3. What are the costs and the benefits to the universities for these programs?
4. Do you think you would accept this type of arrangement? Why or why not?

Source:
Smialek, J. (2012).Colleges Ship Freshmen to Paris to Boost Tuition Coffers, Bloomberg, Aug. 24 (Retrievable online at http://www.bloomberg.com/news/2012-08-24/colleges-ship-freshmen-to-paris-to-boost-tuition-coffers.html)

Hard Rock Expansion Plans

Posted by & filed under Accounting Principles, All Articles, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Intermediate Accounting, Managerial Accounting, Video Updates.

The franchise, Hard Rock Café, is known for its rock’n’roll memorabilia. Located around the globe, the franchise is expanding its reach into hotels and casinos.
Questions:
1. When did the franchise begin?
2. Strategically, why is the move into casinos a good, but difficult one?
3. The franchise rotates more than 70,000 pieces of music memorabilia through its restaurants. What type of accounting do you think is needed for this arrangement and these items?

Sources:
CNN staff (2012). Casinos and hotels: Hard Rock takes on a new beat, August 23 (Retrievable online at http://www.cnn.com/2012/08/23/world/europe/hard-rock-cafe-ceo/index.html)

CNN Video (2012). Hard Rock plans more hotels and casinos, Aug. 23

Breaking Up is Hard to Do

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, International Accounting.

Procter and Gamble (P&G) has operations in 41 countries and 126,000 employees, with annual sales of $84 billion. While these revenues are double that of its closest competitors, analysts and shareholders are beginning to wonder if the company might see faster growth if it split up.

Questions:
1. What is the current stock price? What was the stock price a year ago?
2. What is P&G doing to make itself more attractive to investors? What is the company’s current PE ratio and how do you interpret it?
3. Bill Ackman acquired a $1.8 billion stake in P&G in June with the intent of forcing a shake up at the company. What percentage control is this?
4. What are the pros and cons of splitting the company? If you were a shareholder of P&G, what position would you support and why?

Source:
Bernard-Kuhn, L. and A. Coolidge. (2012). Is P&G Too Big? Weighing the Pros and Cons of Break-up, USA Today, August 19 (Retrievable online at http://www.usatoday.com/money/industries/story/2012-08-19/procter-gamble-growth/57134630/1)