New Estimates Out on the Cost of Having Children

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According to the U.S. Department of Agriculture, the cost of raising a child to the age of 18 is now a breathtaking $226,920. The cost of raising a child has risen over $60K since 2000. As a result, families squeezed by the economy are opting to wait to have children, but also tell Christine Romans in the video that biological factors play a role as well.

Questions:

1. What allocation in the child cost estimates has doubled since 1960? Do you agree or disagree with the decrease in the food allocation for this estimate? Why or why not?
2. What was the bottom line of Bartow’s article on the cost of a child?
3. What items do you think will make up the “other” allocation category in the USDA calculator?
4. Prepare a “general” cost benefit analysis on the cost of a child based on the video, article, and your own views. What are the elements that are difficult to quantify in the decision? Explain how qualitative issues in cost benefit analyses also impact business decisions.

Sources:

Bartow, T. (2011). How much does it cost to raise a child today? Forbes.com, Nov. 20 (Retrievable online at http://m.ctv.ca/topstories/20111118/cost-of-raising-a-child-111120.html)

USDA (2011). USDA Cost of Raising a Child Calculator. (Retrievable online at http://65.216.150.170/default.aspx)

CNN Video (2011). Cost of having kids: $226,920. CNN.com (Retrievable online at www.cnn.com/videos)

Shadow Work: How does it affect the Economy?

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Shadow work is a term coined 30 years ago by the Austrian philosopher and social critic Ivan Illich. For Dr. Illich, shadow work was all the unpaid labor — including, for example, housework — done in a wage-based economy. The conventional wisdom is that America has become a “service economy,” but actually, in many sectors, “service” is disappearing. Not too many years ago, a gas station attendant would routinely fill your tank and even check your oil and clean your windshield and rear window without charge, then settle your bill. Today, all those jobs have been transferred to the customer: we pump our own gas, squeegee our own windshield, and pay our own bill by swiping a credit card. Many examples exist, helping drive unemployment rates. As the article explains, shadow work can be paid or unpaid.

Questions:

1. Give some examples of shadow work that you perform each week and estimate how much it would cost a company to pay someone to do this as part of their job. How would this affect the Wages and Salaries Expense and profit for a company?

2. According to the article, what is the downside of shadow work? Give examples and discuss.

3. According to the article, what are the benefits of shadow work? Give examples and discuss.

Source:

Lambert, C. (2011). Our Unpaid, Extra Shadow Work. The New York Times, Oct. 29 (Retrievable online at http://www.nytimes.com/2011/10/30/opinion/sunday/our-unpaid-extra-shadow-work.html?pagewanted=1&_r=1&ref=opinion)

Wal-Mart Banking

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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)

The Big Bank of America Settlement

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On November 7, 2011, a federal judge gave final approval to a $410 million settlement in a class-action lawsuit affecting more than 13 million Bank of America customers who had debit card overdrafts during the past decade.  The settlement became final a week after Charlotte, N.C.-based Bank of America backed off a plan to charge a $5 monthly fee for debit-card purchases. The outcry prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel trial tests of their own debit card fees.

 

Questions:

1.  Although the judge awarded $410 Million in the suit, what percentage did Barry Himmelstein, an attorney for customers, anticipate was the actual amount collected by Bank of America for the overdrafts?

2.   Explain how the suit claimed that Bank of America maximized these fees.  Give an example that includes 5 overdraft incidences.

3.  Make the journal entry for Bank of America for the settlement, including amounts to be paid to the class-action lawyers.

Sources:

Associated Press Staff (2011). Judge Approves $410 Million Settlement of Lawsuit Against Bank of America On Overdraft Fees, Nov. 7 (Retrievable online at http://www.washingtonpost.com/national/judge-mulling-over-410-million-settlement-in-bank-of-america-overdraft-lawsuit/2011/11/07/gIQACKjZuM_story.html)

Youtube video (2011). Bank of America Agrees in Overdraft Fee Lawsuit to Pay $410 Million (Retrievable online at http://www.youtube.com/watch?feature=player_embedded&v=1Ov6QBMStt8)

Losing Millions

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Bankrupt professional athletes are a sad fixture on the sports scene, and they may or may not mess up more often than the average person who earns a lot of money really fast.  However, their troubles seem outsize because of their fame and the pathetic schemes they fall for. The stakes are particularly high for football players, since their average professional career lasts just four seasons or so and may leave lingering injuries, health costs, or physical limitations.  This article and the interactive multimedia pictorial explain some of the specifics.

Johnny Unitas, one of the greatest quarterbacks of all time, forced into bankruptcy in 1991 with $3.5 million in debts

Questions:

1.  What are the three lessons that the author thinks almost anyone can put to work, whether you are a new college graduate getting a four-figure paycheck for the first time or you have suddenly inherited, earned or won a pile of money?  Do you agree or have any additions?  Discuss.

2. What are the requirements for financial advisors that appear on the N.F.L. players’ pre-screen advisor list?

3. What does the author think that the fiduciary standard should be in order to be listed on the players’ union prescreened advisor list? Discuss whether you think this is the best approach.

4.  What do you see as the CPA’s role in financial planning?

 

Sources:

Lieber, R. (2011). Financial Lessons From Sports Stars’ Mistakes. The New York Times, Sep. 9 (Retrievable online at http://www.nytimes.com/2011/09/10/your-money/financial-lessons-from-sports-stars-mistakes-your-money.html?pagewanted=1&_r=1)

Staff (2011). When Athletes Go Broke, The New York Times, Sep. 9 (Retrievable online at http://www.nytimes.com/interactive/2011/09/10/your-money/20110910-money.html?ref=your-money)

Slinky: Imitated but never duplicated

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Other manufacturers have tried and failed to duplicate the classic toy, which is why every Slinky sold in the world is still made in the U.S.A. It is estimated that more than 250 million Slinky’s have been sold worldwide.

Questions:

1. In which city are Slinky’s made according to the video?
2. How was the Slinky discovered?
3. What year was the company acquired from Betty James? What was the average seniority of the workforce when acquired? Based on this, would you assume that the company had a low or high unemployment tax rate? What effect does employee turnover have on unemployment taxes for employers?
4. Research the Slinky. (see http://inventors.about.com/od/sstartinventions/a/slinky.htm) Why is it considered such an entrepreneurial success story? Where did the name come from? What was the turning point for the company’s success? What was the original investment in the company? If you were recording the original investment, what journal entry would you make for the James Spring & Wire Company?
5. If you assume that the number sold was an equal amount of the total each year since 1945 and the average price was $3, what is the amount of total revenues over the period and annually?

Sources:

Bellis, M. (2011) History of the Slinky Toy, About.com (Retrievable online at http://inventors.about.com/od/sstartinventions/a/slinky.htm)

CNN staff (2011) Slinky: Imitated but Never Duplicated, CNN Money, Nov. 1 (Retrievable online at http://money.cnn.com/video/smallbusiness/2011/11/01/smb_hwgs_slinky.cnnmoney/)

Brother, can you spare $5

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Beginning Tuesday, Starbucks coffee drinkers can get their morning caffeine fix and help create jobs in small businesses across the country. According to CEO Howard Schultz of Starbucks, the company will accept donations for a program that helps raise money and spurs job creation by small businesses, at its almost 6,800 locations across the nation, in addition to its website at www.CreateJobsforUSA.org.

Questions:

1. What is the Opportunity Finance Network? Do you think this a good approach to the downturn in our economy? Discuss.
2. Based on these articles, each job created equal to a salary of $21,000 or are other factors being considered in the multiplier effect mentioned?
3. Do you believe that this campaign is about marketing rather than what the CEO purports? Discuss the pros and cons.
4. Comment on Mr. Schultz’s comment about the importance of a trade off between social contract and traditional profit being needed. Does this indicate that there might be a new profit paradigm emerging in today’s economy? Discuss.
5. Mr. Schultz indicated that Starbucks would probably be spending millions of dollars on the campaign. How would you as their accountant classify these costs?

Sources:
Clifford, C. (2011) Starbucks steps up to the jobs challenge, Oct. 4 (Retrievable online at http://money.cnn.com/2011/10/03/smallbusiness/starbucks_jobs/index.htm?iid=EL)
Clifford, C. (2011) Get your Starbucks, create a job, Nov. 2 (Retrievable online at http://money.cnn.com/2011/11/01/smallbusiness/starbucks_jobs/)

Eneslow Shoes: Change is Good!

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Eneslow – The Foot Comfort Center was founded in 1909 and is a family owned business providing high quality, stylish and comfortable shoes, as well as therapeutic accessories, on-site shoe makeovers and repairs and custom-made footwear. When New York State dropped Medicaid support for orthopedic shoes, Robert Schwartz saw his business drop by nearly 50%. As a result, he sought counsel and closed seven out of eight of the company’s stores in 1989. He used this as an opportunity to reposition the company’s products and now avoids the perception of being an “old ladies store.”

Questions:
1. What were some of the key costs that Robert Schwartz probably eliminated in repositioning his store? What are some costs that Schwartz probably could not eliminate in the downsizing of his operations?

2. Schwartz mentioned that he went to a mentor/counselor about the downturn in his business. What type of services could you provide him as a CPA regarding increasing his business?

3. What was the old model that Eneslow followed? What is the new model according to the video?

4. Go to Eneslow’s website at http://www.eneslow.com/home.cfm Does the company still have one store? What are the most interesting/favorable things that you notice about the company’s website?

Source:

MSNBC Video. (2011). If the Shoe Fits, Your Business (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/25142886#25003452)

Eneslow website, http://www.eneslow.com/home.cfm.

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Hands2Go: Looking at the Numbers

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According to Francine Glick, whose Livingston (N.J.)-based hand sanitizer company, Water Journey, LTD, is on pace to hit $40 M in sales in five years, a network of support is invaluable: “You’re running this race, and it’s not how fast you run or how hard you prepare. It’s all those people cheering you on.” Take a look at her recent pitch and see what you think.

Questions:

1. Ms. Glick indicated that she needed funding of $2 million for a facility, research and development, working capital and additional staff. Make a realistic journal entry that Water Journey would make to record this transaction, assuming that the venture capitalists are sold on this investment. Indicate what assumptions you made.

2. Ms. Glick indicated that the venture capitalists would receive an ROI of 40%. What amount would this be, based upon their $2M investment, for the first year? How is ROI calculated?

3. Summarize the positive points made during Ms. Glick’s brief video pitch. What did the article indicate was the most difficult problem that entrepreneurs face?

Sources:

MSNBC Video. Elevator Pitch: Hands2Go. October 26, 2011 (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/27265816#27265816)

Tossi, J. (2007). The Million-Dollar Club, Business Week, June 22 (Retrievable online at http://www.businessweek.com/smallbiz/content/jun2007/sb20070622_876606.htm?chan=search)

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HAPPY HALLOWEEN: 1-800-Autopsy

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As hospitals and municipalities around the country cut back on the costly service of providing autopsies, family members of the deceased who feel there are unanswered questions that could be resolved by a post-mortem investigation are not without recourse. Today, only about 5 percent of all hospital deaths are autopsied, which is down 42 percent from 1965, according to Archives of Pathology and Laboratory Medicine. Therefore, private autopsy firms are moving in to fill the void.

Questions:

1. Go to the website http://www.1800autopsy.com/.  What services does this company provide? What business model structure did Herrera follow in 2005? Do you agree/disagree that
there is a need for this type of service? Discuss.

2. According to the WSJ article, what fees are typically charged for the autopsies?  Based on this article and the website, what types of accounts do you think Herrera would have as part of his chart of accounts?

3.  According to the WSJ article, what mistakes does Suzanna Dana explain should be avoided in this type of business, as well as for other first-time entrepreneurs?

Sources:

Staff. (2010). Demand Breathes Life into Private Autopsy Companies, Wall Street Journal, October 14 (Retrievable online at http://www.1800autopsy.com/articles/189-demand-breathes-life-into-private-autopsy-companies.html)

MSNBC Video, A dying business? Hardly, Oct. 26 (Retrievable online at http://www.msnbc.msn.com/id/13561213/ns/business-small_business/)

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