Sears and Kmart Close Stores

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

Sears Holding Corp. is ending the year on a bitter note. The company, which earlier this week posted a list of 79 out of the up to 120 Sears and Kmart stores it plans to close and was then downgraded by Fitch Ratings, is now watching its stock bleed out to a new low.

In mid-day trading in New York, the beleaguered retailer’s stock was down to $32.20, heading for its fourth straight daily drop and less than half of the year-earlier price of $74.15.

Questions:

1. Why did Fitch downgrade the company? Specifically, what was the downgrade?

2. Explain what Sears may have to restructure, besides closing stores.

3. Based on the article, what are the projections for the 4th quarter earnings?

4. Calculate the percentage drop in the stock price.

Source:

Staff (2011). Sears, Kmart Closings: Shares Slide To New Low On Fitch Downgrade, Los Angeles Times, Dec. 30 (Retrievable online at http://latimesblogs.latimes.com/money_co/2011/12/sears-kmart-closings-shares-slide-to-new-low-on-fitch-downgrade.htmlhttp://latimesblogs.latimes.com/money_co/2011/12/sears-kmart-closings-shares-slide-to-new-low-on-fitch-downgrade.html)

NBC Video (2011). More than 100 Sears and Kmart Stores to Close, Dec. 27.

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

We Did Everything Right and Still Lost Our Business: Five Failing Businesses in 2011

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

It has been another tough year for small businesses. According to the National Federation of Independent Businessesm one in four believes the biggest problem is weak sales. Issues of timing, cash, and a lack of realistic estimates also add to the challenges they face.

Questions:

1. After reading the article, what advice would you offer to anyone thinking about starting a business in 2012?
2. What was the main issue that Michelle Lewis mentioned that would have helped her business model and why is it important to you as a future accountant?
3. Which one of the five businesses mentioned do you think could have been viable with adequate advice from a financial advisor or accountant? Why?

Source:

Zimmerman, E. (2011). 5 Businesses That Failed to Survive Trials of 2011, The New York Times, Dec. 28 (Retrievable online at http://www.nytimes.com/2011/12/29/business/smallbusiness/five-businesses-that-did-not-survive-2011.html?pagewanted=1)

Amy’s Kitchen in the Small Business Spotlight

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Amy’s Kitchen started in 1987 as one of the first frozen food companies for vegetarians. Naming the company after their daughter, Amy, Rachel and Andy Berliner worked as a team and started the company on a shoestring budget. Their first product, vegetable pot pie, has now led to over 88 frozen meals and in 1999, they introduced a grocery line that now includes canned soups, beans and chili as well as jarred pasta sauces and salsas.

Questions:

1. Go to Amy’s Website at (http://www.amys.com/). What is the thing that you like most about it? Is the company publicly or privately held?

2. Based on the website, who was the chief accounting executive for the company and what title did that person hold? Discuss whether this title agrees or disagrees with your textbook and why. From looking at the executives on the website, can you draw an organizational chart of the company? Why is this important?

3. What were the pieces of advice that the owners offered to small business owners in the video? Do you agree or disagree? Discuss.

Source: MSNBC video (2011), Learning from the Pros: Amy’s Kitchen, November 13 (Retrievable online at http://www.openforum.com/videos/learning-from-the-pros-amys-kitchen)

Ever Thought About Operating A Franchise?

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

Tired of not getting paid what you’re worth (or not paid at all) and want to start your own, already-proven business? That’s what is intriguing about franchising. Pick a brand, pay your money, take your chances, and then you’re an entrepreneur. Running day-to-day operations and turning a profit is another matter, of course. However, success starts with picking the right system, because there are roughly 3,500 franchises to choose from.

Questions:

1. The video talked about the top five types of franchises, but what are the top 10 actual franchise companies? (See http://www.entrepreneur.com/franchise500/index.html)
2. Look at the Forbes article. What four variables supported their recommendation for the best investments in franchises?
3. Now look at the Forbes “In Pictures: The Top 20 Franchises To Start,” which is hyperlinked in the article. Which one interests you and why? Use your accounting knowledge to explain. Discuss the risks and challenges involved.

Source: MSNBC video (2011), Top Five: Franchise Trends, Dec. 18 (Retrievable online at http://www.openforum.com/videos/top-five-franchise-trends)

Davis, L. and M. Farrell (2011). The Top Franchises for the Money, Forbes.com, January 18 (Retrievable online at http://www.forbes.com/2011/01/18/best-franchises-for-the-buck-entrepreneurs-finance-franchise.html)

The Virtues of Paying Taxes in Italy

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

A new blitz of public service announcements and speakers at local schools are trying to raise the social stigma on tax evasion in Italy, as the country struggles to reduce its $2.5 trillion public debt and fend off speculative attacks. Other tougher measures will allow tax officials to peer into Italians’ bank accounts to check declared income against bank deposits — not to mention yacht, car and home ownership — under a new cross-referencing initiative.

Questions:

1. How much does the country estimate that it loses in undeclared revenues on an annual basis?
2. What are the statistics on who own large boats, airplanes, and luxury cars in Italy?
3. Briefly discuss why the article calls this tax evasion problem one of heritage.

Source:

Donadio, R. and E. Povoledo (2011). Italy Tries Raising the Social Stigma on Tax Evaders, The New York Times, Dec. 24 (Retrievable online at http://www.nytimes.com/2011/12/25/world/europe/italy-tries-to-raise-the-social-stigma-on-tax-evasion.html?_r=1&src=recg)

Fatca Legislation

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Legislation meant to help the United States government locate overseas assets of American tax cheats created little stir when it was quietly slipped into a jobs bill last year. But the Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown.

Questions:
1. After reading the article, do you think that Fatca was a good Act to put in place? Why or why not?
2. What will any foreign company, in which Americans are beneficial owners, have to do according to the new legislation?
3. What is the deadline for companies who must register under the Act?
4. Why did the article call it a “sledgehammer” approach?

Source:

Jolly, D. and Knowlton, B. (2011). Law to Find Tax Evaders Denounced, The New York Times, Dec. 26 (Retrievable online at http://www.nytimes.com/2011/12/27/business/law-to-find-tax-evaders-denounced.html?_r=1&adxnnl=1&src=recg&pagewanted=1&adxnnlx=1324987211-d+MTA5CwojU1kgrQ2w/iug)

Do you think they will notice if we understate the numbers a little?

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

The Securities and Exchange Commission capped a three-year investigation into Fannie Mae and Freddie Mac on Friday, filing securities fraud charges against six former executives at the government-sponsored mortgage giants. The SEC claims that the execs failed to disclose the full extent of their companies’ subprime loan exposure. However, the outcome of the cases could depend on what exactly is considered a subprime loan, with one defendant already arguing that there’s no standard definition.

Questions:

1. By what percentage did the Freddie Mac executives understate the amount of the company’s Single Family Guarantee business that was exposed to subprime loans in June 2008?
2. By what percentage did the Fannie Mae executives understate the amount of the company’s “Alt-A” loans?
3. What does a 10-Q filing with the SEC present?
4. Explain why most of these SEC settlements are set up with the language “without admitting or denying liability?” Do you believe this is a good thing?

Source:

Li, V. (2011). SEC Suits Against Fannie Mae, Freddie Mac Execs Turn on Subprime Loan Definition, Law.com, Dec. 20 (Retrievable online at http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202536066304&SEC_Suits_Against_Fannie_Mae_Freddie_Mac_Execs_May_Turn_on_Subprime_Loan_Definition)

A Feel-Bad Ending: Swell the Music for Rudy

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

If you look up memorable quotes by Rudy Ruettiger, they exact all the inspirational feelings you can muster about “acting on your dreams.”

One of my favorites does not have such a pretty answer, now:

–If you knew you couldn’t fail, what would your goals be?

Sadly, the answer might be:

–To attempt a “pump-and-dump scheme.

Unfortunately, failure in achieving the goal, although not confirmed or denied, followed former Notre Dame football player, Daniel “Rudy” Ruettiger – the subject of the 1993 underdog movie “Rudy,” who created a sports drink company as a shell for a “classic pump-and-dump scheme.” The Securities and Exchange Commission says that the scheme bilked investors out of more than $11 million.

Questions:

1. What was the penalty imposed by the SEC settlement? Discuss whether you believe this was equitable.
2. How long did the scheme last? Look at the ACFE website (www.acfe.com). How does this compare with the length of the average pump-and-dump scheme, according to the 2010 Report to the Nation?
3. What product did the company claim to be in direct competition with? According to the article, was this the only thing that lured investors into the scheme?

Source:

Divito, N. (2011). Feel-Bad Ending for Hero of “Rudy” Movie, Courthouse News Service, Dec. 19 (Retrievable online at http://www.courthousenews.com/2011/12/19/42343.htm)

Treadway, D. (2011). Rudy Ruettiger Stock Scam: SEC Files Complaint Against Subject Of Famous Sports Movie, Huffington Post, Dec. 19 (Retrievable online at http://www.huffingtonpost.com/2011/12/19/rudy-ruettiger-stock-scam_n_1158017.html)

A Good Deal?

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

Show them the money and you, too, could live at The Plaza in New York City! Life at the city’s storied hotel is kush no matter what, but this newest listing is giving new meaning to the high life. Curbed directed our attention to the Astor Suite, a four-bedroom, six-bath rental, which is currently being offered for $165,000 per month. Yes, that makes it New York’s most expensive rental on the market.

Questions:

1. If as the video indicated, the apartment is worth $55M today, what percent of the value is the owner willing to accept in annual rent? How does this compare to the rent to value ratio of an average furnished apartment in your area?

2. Assuming that the owner’s renovations were $5M, what percentage annual return will the owner receive on his investment, if he is able to sell it for $55M? How would he record the journal entry?

3. Based on the square footage stated in the article, what is the sales price per square foot? Look online and find a home with similar square footage that is furnished and discuss how it compares. What are some of the qualitative differences that the buyer be paying for in The Plaza apartment, as compared to the one you found for sale online?

Source:

Zeveloff, J. (2011). At $165,000 A Month, This Is The New Most Expensive Apartment Rental In New York, Business Insider, Dec. 8 (Retrievable online at http://www.businessinsider.com/most-expensive-apartment-rental-new-york-astor-suite-plaza-2011-12)

Knutsen, E. (2011). Only at the Plaza Could They Charge $165,000 a Month for An Apartment, The New York Observer, Dec. 8 (Retrievable online at http://www.observer.com/2011/12/only-at-the-plaza-could-they-charge-165000-a-month-for-an-apartment/)

CNN Video, New York’s Most Expensive Rental, Dec. 15

The Cost of Sweet Music

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

Manuel Rodriguez III owns the century-old family business of the same name, heir to a tradition of guitar manufacturers which dates back to 1905 when his grandfather gave up fishing in Cadiz to dedicate his life to his musical passion. Now the Spanish guitar factory is looking beyond Europe to keep the company competitive.

Questions:

1. According to the video, by what percentage has the workforce been reduced by in the Spanish factory? How does this compare to the percentage quoted in the article? What does Manuel attribute this reduction to?
2. Discuss the processes Manuel discusses in terms of cost accounting, both at the Spanish and China factories, and how these impact the company’s costs.
3. Based on the figures given in the article concerning the lower range guitars, construct an annual income statement.

Sources:

Castellanos, C and C. Ruano. (2011) Spanish Crisis Won’t Silence Manuel Rodriguez Guitars, Reuters.com, Apr. 7 (Retrievable online at http://uk.reuters.com/article/2011/04/07/uk-spain-guitars-idUKTRE73641V20110407)

CNN Videos. (2011). Spanish Guitar Factory Eyes Investment, Dec. 8 (Retrievable online at www.cnn.com/videos)