Taken for a Ride When Trading in a Car

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Under the Dodd-Frank financial reform act, the Federal Trade Commission (FTC) is now going after auto dealers that imply to customer that they have no remaining debt obligation for trade-ins. Five dealers in four states (South Dakota, North Carolina, Connecticut and West Virginia) have already agreed to settlements that order them to stop running ads promising to pay off a customer’s loan on a trade-in.

Questions:

1. Explain the practice that the FTC is putting a stop to by using the journal entries that a dealer would make.
2. What percentage of new-car shoppers in 2011 traded in a car on which they had negative equity? Develop an example of this using T-accounts from the point of view of the car owner.
3. The FTC is accepting public comments on the proposed dealer settlements until what date?

Source: Singletary, M. (2012). Trading in a car? Don’t get taken for a ride. The Washington Post, March 17 (Retrievable online at http://www.washingtonpost.com/auto-dealers-take-trade-in-owners-for-a-ride/2012/03/12/gIQAT2sRJS_story.html)

TaxMasters Trouble

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A Houston-based tax advisory firm filed for bankruptcy Sunday, a little more than one day before it was scheduled in court to defend itself against fraud accusations. Best known for a national advertising campaign that made company’s bearded, red-haired founder Patrick Cox a recognizable figure, the company spent about $14 million in national advertising in 2009.

Questions:

1. According to the article, what amounts of assets did the company have as compared to debt in the Chapter 11 filing? According to the article, what does the timing of the bankruptcy have to do with the lawsuits filed?
2. What states are suing TaxMasters? What is the company charged with?
3. Instead of speaking to highly qualified tax consultants, who do TaxMasters customers alledgedly speak with?

Source: Video: Oberg, T. (2012). TaxMasters Files Chapter 11 Bankruptcy., ABCNews.com, March 19 (Retrievable online at http://abclocal.go.com/ktrk/story?section=news/local&id=8586594)

Mosk, M. (2012). TaxMasters Files for Bankruptcy, ABCNews.com, March 19 (Retrievable online at http://abcnews.go.com/Blotter/taxmasters-files-bankruptcy/story?id=15932628)

Bathon, M. (2012) TaxMasters Files for Bankruptcy, Dogged by Fraud Suits. Bloomberg.com, March 19 (Retrievable online at http://www.bloomberg.com/news/2012-03-19/taxmasters-files-for-bankruptcy-dogged-by-fraud-suits-1-.html)

Crime of Grime OR Sign of the Times?

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Tide is flying off the shelves, according to the Associated Press. Unfortunately, retailers are not seeing the profits from this familiar laundry soap. Instead, Tide has become a hot commodity among thieves at supermarkets and drugstores in at least some parts of the country. While the maker of Tide, Procter & Gamble, has been baffled about why the brand has gotten so much attention from thieves, law enforcement has discovered direct and indirect links to the exchange of the product for illegal drugs.

Questions:

1. If a retailer uses a perpetual inventory method to account for Tide, what should they also follow up with to determine any shortages in the product?

2. If shortages of Tide are found, how should they be accounted for? Give an example including journal entries.

3. How should the extra expenses of security tagging Tide be accounted for? Give an example including journal entries.

Sources:

Nuckols, B. (2012). Thieves Rolling Tide Detergent Out of Stores, Associated Press, March 15. (Retrievable online at http://abcnews.go.com/US/wireStory/thieves-rolling-tide-detergent-stores-15922603)

Youtube.com (Wane.com). (2012). Retailers speak out against odd Tide thefts, March 14.(Retrievable online at www.youtube.com)

Christmas Cheer Backfires

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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

Costs versus Benefits of a Marketing Campaign

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Is it April Fool’s Day, yet? No, this really happened! The international marketing agency of BBH Labs recently outfitted 13 volunteer homeless shelter individuals as “human wireless transmitters” at the South by Southwest technology conference in Austin, Texas. The company provided the individuals with the devices, business cards and T-shirts listing their names followed by “a 4G Hotspot.” The homeless volunteers were told to go to the most densely packed areas of the conference to serve the large crowds that typically overwhelm cellular networks in the area. Each participant was paid $20 a day, plus any tips that conference goers donated in exchange for the wireless service. Needless to say, the marketing campaign has been criticized as “a darkly satirical science-fiction dystopia.”

Questions:
1. Do a cost/benefit analysis on this marketing campaign. What are the costs?
2. What are the benefits?
3. What are some of the qualitative issues about this strategy that you would include in a report about this marketing campaign? In your report, conclude with a recommendation.

Source:

Wortham, J. (2012). “Use of Homeless as Internet Hot Spots Backfires on Marketer,” The New York Times, March 12 (Retrievable online at http://www.nytimes.com/2012/03/13/technology/homeless-as-wi-fi-transmitters-creates-a-stir-in-austin.html?_r=1)

Can you say: Tapping a Swiss Bank account with Other People’s Money?

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A Houston jury Tuesday convicted Texas financier R. Allen Stanford on all but one of the charges he faced for allegedly bilking investors out of more than $7 billion in one of the largest Ponzi schemes in U.S. history.

Questions:

1. Why, if Allen Stanford faces up to 20 years in prison for the most serious charges but could he be imprisoned for much longer?

2. How did Mr. Stanford separate the investors from their money and when did the government shut down the scheme?

3. What red flags of fraud were mentioned in the article?

Source:

MSNBC.com Staff. (2012). Jury convicts Stanford in $7 billion Ponzi scheme, March 6 (Retrievable online at http://www.msnbc.msn.com/id/46642425/ns/business-us_business/)

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

Prospects for Pandora

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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/)

Look into Auto Refinancing

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In the past few years, millions of homeowners have realized huge savings by refinancing their mortgages. Now, the refinancing craze is catching on in the car loans industry. According to this article refinancing could same your car might save you big time bucks.

Questions:

1. According to the article, by how much have auto refinancing applications risen?
2. What does the phrase mean if “a loan has turned upside down”?
3. One refinancer offers an interest rate of 2.625% with an APR of 2.795% Explain what this means.

Source:

Caplinger, D. (2012). The Money-Saving Refinancing Move You’ve Never Considered, Daily Finance, March 5 (Retrievable online at http://www.dailyfinance.com/2012/03/05/the-money-saving-refinancing-move-youve-never-considered/)

A Ponzi Scheme in Ohio

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In September, a prominent member of the Amish community in Sugarcreek, Ohio was arrested and accused by federal prosecutors of running a Ponzi scheme that betrayed his neighbors’ trust and wiped out more than $16 million of their savings. The elderly defendant, Monroe L. Beachy, had been a respected financial figure in his community for decades. Interestingly, unlike Bernie Madoff, the investors went to court and urged that it was more important to forgive him than recover their money. In fact, Amish religious leaders petitioned the bankruptcy court to let the church take on the debt and handle the ponzi scheme, rather than the courts. The bankruptcy judge ruled that “delegating insolvency proceedings to a religious body” would be unconstitutional. More than a year after Beachy went bankrupt, he has been indicted on mail fraud charges arising from a “scheme to defraud” that the Feds say dates back to 1990. If convicted, he faces a possible jail term of up to 20 years.

Questions:

1. What is a Ponzi scheme?

2. The campaign to have the Beachy bankruptcy case dismissed was based on what legal Act or rights? Do you agree or disagree with the bankruptcy judge? Discuss.

3. Explain how, if Beachy had been insolvent since as early as 1998, that this fraud was able to last until 2010?

Sources:

Henriques, D. B. (2012). Broken Trust in God’s Country. The New York Times, Feb. 25. (Retrievable online at http://www.nytimes.com/2012/02/26/business/in-amish-country-accusations-of-a-ponzi-scheme.html?_r=1)

NYTimes Video. (2012). Ponzi Scheme in Ohio (Retrievable online at http://video.nytimes.com/video/playlist/business/1194811622255/index.html)

Embrace Change

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Kodak, the 131-year-old film pioneer, filed for bankruptcy protection last month. News got worse this week when the company announced they would stop doing what they were the first to ever do – manufacture digital cameras. Then on Feb. 15, Apple asked a bankruptcy court for permission to sue Kodak for patent infringement, resulting from Kodak’s efforts to import printers and digital camera.

Questions:

1. Why did the video say that this should be a business school case study?
2. What specific signs should Kodak have recognized as roadmarks for change?
3. What is Kodak’s strategy going forward under bankruptcy protection? Discuss what other avenues you believe Kodak could take going forward.
4. If Apple is successful, how should the company account for any proceeds gained from the patent infringement lawsuit?

Source:

The New York Times video.(2012). Kodak Declares Bankruptcy, Jan.19 (Retrievable online at http://video.nytimes.com/video/2012/01/19/business/100000001296658/kodak-declares-banruptcy.html)

Passikoff, R. (2012). No More Kodak Moments. Forbes.com, Feb. 13 (Retrievable online at http://www.forbes.com/sites/marketshare/2012/02/13/no-more-kodak-moments/)

Reuters staff. (2012). Apple Inc. has asked a bankruptcy court for permission to sue Eastman Kodak, accusing it of infringing its patents. Reuters.com, Feb. 15 (Retrievable online at http://www.reuters.com/article/2012/02/16/us-apple-kodak-idUSTRE81F05V20120216)