The Poster Boy in a Different Type of Pennant Race – Time for a Reality Check

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Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. A little-known tax abatement program, known as the “421A” program, has existed for decades, which grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing. Although the program ended in December for any new construction, the city’s powerful real estate industry is determined to get it renewed and even get it expanded.

Questions:

1.  What percentage of A-Rod’s income would he pay if assessed the full tax bill of $60,000?

2. What percentage of A-Rod’s income is the $1,200 he currently pays under the tax abatement program?

3. If $900 million are lost to this program per year and the average salary of a firefighter or teacher is $50,000, how many jobs could be saved by the reform of this abatement?  If you assume that A-Rod’s full tax bill ($60,000) is the average for those who have taken this advantage, approximately how many people benefit from the discount?  Compare these two calculations and discuss.  

4.  Are there any issues that you could use to argue that the abatement program should be reinstated? 

Source: Gonzalez, Juan. (2011). Tax Breaks on Real Estate Deals for People Like A-Rod Cost City $900M a Year, New York Daily News, February 25 (Retrievable online at http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29)

What is the cost of a bad hire?

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In this article, Goltz helps you understand the importance of a bad business decision, action or behavior, within the hiring process that can have long lasting monetary results. The hidden costs of a bad hire can result in increased recruitment costs, increased training costs, possible increases in the rate of unemployment taxes due to increased claims paid out to a company’s former employees, the costs of losing customers, and the costs of inefficient business processes.

Questions:

1. What is the federal unemployment rate? Are there credits toward this rate?
2. What is the unemployment rate in your state? Can states borrow from the Federal government to pay unemployment insurance?
3. What is the journal entry to record unemployment tax? Does the employee ever pay unemployment taxes?

Source:
Goltz, J. (2011). The Hidden Costs of Bad Hiring. The New York Times, March 1 (Retrievable online at http://boss.blogs.nytimes.com/2011/03/01/the-hidden-costs-of-bad-hiring/?ref=business)

Intellectual Property Disputes

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.

The proper valuation and management of intellectual property is an area where accountants add value to their client services.  Often companies engage accountants and other financial experts to defend both plaintiffs and defendants in intellectual property (“IP”) disputes. As this video shows, similarity in names or trademarks can be at the heart of these disputes. 

In this David versus Goliath case, a small software firm, specializing in business management and cost accounting software for bakers got tired of being confused with the popular reality show known as Cake Boss. They had been using the name since 2007, which was well before Discovery Communications, The Learning Channel’s parent company began in 2009.  After co-owners  John and Kelly Masters were ignored by Discovery communications, they filed suit to protect their trademark and in July 2010, a federal court judge in Seattle, Washington issued a temporary injunction that barred the show from using the name “Cake Boss” following the last episode of the show’s third season.  Despite a multi-million dollar investment in the show, it was found that Discovery did not even make a rudimentary attempt to make sure the name was not in use by Masters. At stake was not only the show, but sales of related merchandise.

The case was eventually settled at the end of 2010 so that  “Cake Boss” Buddy Valastro can use the name on the show and Masters can still use it for its software and other items.   The injunctive relief in this case proved to be quite expensive.  In the end, the case serves to remind accountants and other financial experts concerned with the valuation of trademarks that performing and documenting fundamental internet searches on trademarks, trade names, etc., should be part of the due diligence process for any company.

Questions:

1. What is “reverse confusion” in an intellectual property trademark dispute? 

2. What evidence did the plaintiffs in the case present as documentation?

3. What did the Learning Channel and Discovery fail to do before beginning the show?

4. How should either company report the settlement of this litigation in their financial statements?

Source:

The case cite is Masters Software, Inc. v. Discovery Communications, Inc., No. 10-405 (W.D. Wash. July 16, 2010) (Jones, J.).

YouTube.com Cakeboss vs. Cake Boss Lawsuit – Intellectual Property Lawyer (B), World News- Hoboken Magazine, July 2010. (Retrievable online at http://www.youtube.com/watch?v=VcOUBRzmf5c)

Colaneri, K. (2010) ‘Cake Boss’ will keep his name, settles ‘amicably’ with software company. The Jersey Journal, October 22. (Retrievable online at http://www.nj.com/hobokennow/index.ssf/2010/10/cake_boss_will_keep_his_name_s.html)

Is Wall Street a Dead End?

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By now you have probably already heard that Deutsche Börse, a giant German exchange, is buying the New York Stock Exchange, creating a company worth some $24 billion and that this news arrived shortly after the Dow broke the 12,000-point barrier for the first time since before the financial crisis.  But does this mean that Wall Street market exchanges are healthy?  According to Felix Salmon, a finance blogger at Reuters, the glory days of publicly traded companies dominating the American business landscape may be over. The number of companies listed on the major domestic exchanges peaked in 1997 at more than 7,000, and it has been falling ever since.

Questions:

1.  Based on the video and the article, what are the overarching reasons for Mr. Salmon’s opinion about Wall Street? Do you agree or disagree?  Why or why not?

2.  Explain public versus private sources of funds for companies. Does the accounting for these sources differ?

3.   Mr. Salmon submits, “And companies love how private markets allow them to avoid much of the regulatory burden of being public.” Discuss this statement in terms of the Sarbanes Oxley Act (SOX) and its costs and benefits.

4.  What affect do you think IFRS will have on this stock market situation? Discuss.

Sources:

Salmon, F. (2011). Wall Street’s Dead End, The New York Times, February 13. (Retrievable online at http://www.nytimes.com/2011/02/14/opinion/14Salmon.html?_r=2&scp=1&sq=Felix%20salmon&st=cse)

NYT Video (2011). Viewpoints: Wall Street’s Dead End? (Retrievable online at http://video.nytimes.com/video/playlist/business/1194811622255/index.html)

What kind of car should you buy?

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Do you ever consider the price of insurance before you buy a car?  Well, maybe you should. According to the insurance data company Quadrant Information Services, a new ranking of average premiums for 2011 models is out, based on averaging late December 2010 car insurance rates from six large carriers across 10 ZIP codes in each state.

Questions:

1. The article says that the rankings are based on the premium that a 40-year-old man with a good driving record (no speeding tickets or accident claims), a good credit record and a 12-mile commute would pay annually.  How do these factors impact insurance rates? In your discussion, compare this to risk assessment when performing an audit.   

2.  How do ZIP codes factor into these rates?  Why?

3.  Why do you think that the national average annual premium for the Mercedes-Benz SL65 AMG is 17 percent higher than the cost to insure the most expensive vehicle in last year’s results, which is the Porsche 911 Carrera GT2?

Schultz, J.S. (2011). The Most (and Least) Expensive Vehicles to Insure, The New York Times, February 1 (Retrievable online at http://wheels.blogs.nytimes.com/2011/02/01/the-most-and-least-expensive-vehicles-to-insure-2/?ex=1312347600&en=68b2d4fc6acd5689&ei=5087&WT.mc_id=AU-D-I-NYT-MOD-MOD-M187-ROS-0211-L2&WT.mc_ev=click).

Macro Sea: Urban Renewal and Greening Ideas

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David Belt, a successful developer and construction consultant and manager, is interested in urban renewal and the greening of America.  He created a stir when he created do-it –yourself swimming pools made from dumpsters.  In another project, Glassphemy, Belt and his team of architects endeavored to make recycling more exciting.  This project allowed participants to hurl glass bottles from a 20-foot high, 30-foot long steel tower at friends, enemies, and loved ones who are safely shielded behind bulletproof glass (sort of like a modern dunking tank without the dunking). The idea for a structure that facilitated smashing bottles in a fit of was born at an Infill Philadelphia conference, where the Community Design Collaborative brought together innovative minds to reconsider under-utilized urban spaces.  The attraction closed October 17th, 2010 at the end of a contest for the best way to utilize the recycled glass.  Macro Sea has also rehabilitated deserted vacant lots and strip malls in Detroit into skate parks.  It will be interesting to see what is next for Macro Sea.

Sources:

Ryzik, M. (2010). A Smashing Idea: Eco-Friendly Aggression, The New York Times, May 11 (Retrieved online at http://www.nytimes.com/2010/05/12/arts/design/12glass.html)

Video. (2010). Recycling with a Vengeance. The New York Times, May 11.  (Retrievable online at http://video.nytimes.com/video/2010/05/11/arts/1247467823158/recycling-with-a-vengeance.html) 

Questions:

1. What is your opinion of “green business”?  Is it a good idea?  Why or why not?

2. Who are some of the top corporate adopters of sustainability?

3.  What effects do you think that a company gains from adoption of a sustainability policy (both quantitative and qualitative)?  Justify your answer. 

4.  Which Macro Sea idea do you think has the greatest potential for making a difference in the “greening of America”? Why?

Sources:

Ryzik, M. (2010). A Smashing Idea: Eco-Friendly Aggression, The New York Times, May 11 (Retrieved online at http://www.nytimes.com/2010/05/12/arts/design/12glass.html)

Video. (2010). Recycling with a Vengeance. The New York Times, May 11.  (Retrievable online at http://video.nytimes.com/video/2010/05/11/arts/1247467823158/recycling-with-a-vengeance.html)

Bank of America CEO: Sorry no Raise.

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Bank of America Corp. is not giving its top executive a raise for 2011, unlike some rivals in the financial services industry. Over the past year, the nation’s largest bank by assets saw its stock fall 11 percent. While President and CEO Brian Moynihan didn’t receive a raise in his base salary or any cash-settled stock units, which are payable in cash based on the share price over the course of the year, he was granted $9.05 million in restricted stock units that are contingent on the bank meeting certain performance goals over the next five years. Moynihan’s base salary will remain at $950,000. The stock has changed hands between $10.91 and $19.86 in the past 52 weeks. Three other senior Bank of America executives are getting salary bumps of 6.25 percent, to $850,000 from $800,000, in addition to stock awards.

Questions:

1.   How should the company record the restricted stock units? How should they record the salaries?

2. What additional information do you need to know before writing a footnote disclosure about the restricted stock unit award?

3.  During the year, Goldman Sachs more than tripled the salary of CEO Lloyd Blankfein to $2 million, not including stock awards, and also granted raises to four other top executives. Citigroup Inc. gave its top executive, Vikram Pandit, a salary raise to $1.75 million, from just $1 the previous year.  Why do you suppose BoA has limited its salaries to less than $1 million? Discuss.

Source:

Baron, M. (2011). No Raise for Bank of America’s Moynihan, The Street.com, January 31. (Retrievable online at http://www.thestreet.com/story/10990807/1/no-raise-for-bank-of-americas-moynihan.html?cm_ven=GOOGLEN)

Connelly, E. (2011). Bank of America CEO Moynihan Salary Flat for 2011. Huffingtonpost.com, January 31 (Retrievable online at http://www.huffingtonpost.com/2011/02/01/bank-of-america-ceo-pay_n_816789.html)

More BP back in the News

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The U.S. Federal Energy Regulatory Commission (FERC) and the U.S. Commodity Futures Trading Commission (CFTC) are currently investigating several BP entities regarding trading in the next-day natural gas market at Houston Ship Channel during October and November 2008. The FERC’s enforcing body is now mulling whether to pursue charges against BP, which was prosecuted on propane market manipulation charges in 2006. In that event, BP paid around $300 million to settle those charges.

Questions:

  1. What type of disclosure do you think BP should have made in their financial statements regarding the propane market manipulation? What accrual is needed?
  2. In general terms, when should it have been disclosed?
  3. In addition to the $300 million settlement charges, what expenses would you anticipate that BP incurred?

Source:

Reuters Staff. (2011) U.S. Probing BP For Gas Market Manipulation, HuffingtonPost.com, February 2 (Retrievable online at http://www.huffingtonpost.com/2011/02/02/us-probing-bp-for-gas-mar_n_817340.html)

BP and Dividends: What’s going on?

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BP’s decision to issue $1.25 billion in dividend payments rankled Gulf Coast residents Tuesday who saw it as another sign the company wants to move on even though many are still suffering from last year’s massive oil spill in the Gulf of Mexico. At issue is the fact that none of the 91,000 claims funneled to the claims fund Trustee, Ken Feinberg, have been finalized from the $20 billion claims fund.

Question:

1. What journal entry do you think BP should make for the dividend issue on Tuesday, February 1, 2011?

2.  Could the Trustee handling BP claims intervene and get a court order barring any distributi­ons until all claims are fully settled? Do you think he should?  Why or why not?

3.  Discuss both the strategic management perspective of making this dividend. Include both qualitative and quantitative issues related to BP’s decision to begin dividend payments again.

Source:

CNN Video. (2011). Reaction to BP dividend payment, February 2. (Retrievable online at www.cnn.com/video/)

Lewison, Jed. (2011). Frustration on Gulf Coast As BP Resumes Dividends Despite Unsettled Claims, DailyKos.com, February 2 (Retrievable online at http://www.dailykos.com/storyonly/2011/2/2/940710/-Frustration-on-Gulf-Coast-as-BP-resumes-dividends-despite-unsettled-claims)

Healthcare Turf

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Walgreens (WAG), the country’s largest drugstore chain, is poised to expand even further into healthcare. At Walgreens’ annual shareholder conference, company officials talked about a new educational program for patients with chronic and complex diseases, and even mentioned the possibility of a Walgreens role in the emerging accountable care organizations. Until recently, most retail clinics have confined themselves to minor acute care. Now, however, Walgreens and some other outlets are beginning to branch into chronic disease care, as well.

Questions:

1.  According to Terry, what will Walgreen’s lower operating expenses translate into?  In other words, what limitations of this expansion are at issue?

2.  Who is Walgreen’s competition in this field?  What trends in healthcare policies do you think have prompted their latest moves and acquisitions?

3. Look at Walgreen’s Annual meeting press release.  What is the company’s free cash flow and what has that allowed them to do?

Source:
Terry, K. (2011). Walgreens Eyes Further Expansion Into Healthcare Turf. Good!, BNET.com, January 18 (Retrievable online at http://www.bnet.com/blog/healthcare-business/walgreens-eyes-further-expansion-into-healthcare-turf-good/2378?tag=mantle_skin;content)

Staff. (2011) Walgreens Reviews 2010 Performance Progress and Future Opportunities at Annual Meeting, Fierce Healthcare.com, January 13 (Retrievable online at http://www.fiercehealthcare.com/press-releases/walgreens-reviews-2010-performance-progress-and-future-opportunities-annual)