A Cost Allocation Dilemma

Posted by & filed under Accounting Principles, Cost Accounting, Managerial Accounting.

A Cost Allocation Dilemma

The CIO Executive Board is a membership of senior executives with a shared commitment to steward enterprise-wide IT initiatives. In their role of offering cross-functional perspectives on IT and practical tools to promote strategic agendas, the Board found via a survey that most companies are using a “lump sum” cost allocation method to distribute IT operating costs and that this method typically provides little connection between the costs and the volume of services actually consumed.

Questions:

1. Based on the article, some companies used a “granular-chargeback model.”  Explain what this is and its benefits or costs.

2.  What is the CIO Executive Board recommending at the best practice for allocating IT costs?

3.  Explain in your own words what you see as the benefits of implementing the CIO Executive Board’s recommendations.

Source:

McCann, David. (2010) The New Star of IT Cost Allocation. CFO.com, Today in Finance, April 28. (Retrievable online at http://www.cfo.com/article.cfm/14494101/c_14494842?f=TodayInFinance_Inside)

What If You Can’t Pay Payroll Taxes?

Posted by & filed under Accounting Principles, All Articles, Financial Accounting, Intermediate Accounting, Video Updates.

In this video, Darrin T. Mish, tax attorney discusses some of the questions businesses ask about non-payment of payroll taxes.  His advice is to “get current” as soon as possible, even though the IRS may not catch the lapse for up to four years and because IRS payroll tax problems can quickly escalate, once identified.

Questions:

1. What form is the Employer’s Quarterly Federal Tax Form?

2. What is known as the trust fund portion of the payroll tax obligation?

3. In general, if an agreement is made with the IRS to pay back payroll taxes, over how many years is this agreement?

Source: YouTube.com. What to do if you are behind on payroll taxes, June 23, 2009. (Retrievable online at http://www.youtube.com/watch?v=HTvpHyl4WsA)

New Accounting Rules for Off-Balance Sheet Assets

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

New accounting rules governing off-balance-sheet transactions went into effect for most companies in January 2010. The rules force companies to put assets, like mortgage servicing rights, back on their balance sheets.

Questions:

1. What financial accounting standards (FASs) are forcing companies to put such assets back on their balance sheets?
2. What are some of the reasons that these assets are returning to the balance sheet?
3. Since their enactment, which industry is most impacted by the new accounting rules?
4. Can you speculate why companies, like Harley Davidson and Marriott International, showed big jumps in assets, due to these new rules?

Source: Leone, Marie. (2010). Balance Sheets Are Busting Out All Over, CFO.com, April 23.
(Retrievable online at http://www.cfo.com/article.cfm/14492562?f=most_read)

Accounting for Security Deposits

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

A security deposit is money paid by the tenant to the landlord. This deposit protects the landlord if the tenant vacates without making required payments or damages the rental property. If the tenant gives proper notice and vacates without owing any rent or damages, the landlord must return the security deposit to the tenant in accordance with laws in the state where the rental property is located.  This video looks at some New York regulations pertaining to accounting for security deposits.

Questions:

1.  Using the example in the video, make the journal entries that a landlord or rental company would record upon the receipt of the security deposit and the final disposition of the forfeited security deposit to the rental company or landlord.

2. Using the example in the video, make the journal entries to that the landlord or rental company would  record for the interest on the security deposit, including administrative fees collected on the interest and the distribution of interest to the tenant.

3.  Go to the following website http://www.allbusiness.com/legal/contracts-agreements-forms-real-estate/8107-1.html and access a partial form itemizing deductions from a tenant security deposit for a residential rental unit.  Do you see the interest listed on this form, as discussed in this video? Which item number is it?  Have you ever received such a form when you vacated a rental property?

4.  Does your state have a similar law about interest earned on a security deposit, as was explained in the video?

Source: YouTube.com “Tenants’ Security Deposits: The Law and Accounting  – Landlording TV, February 3, 2010.  (Retrievable online at http://www.youtube.com/watch?v=iNxMvGRc6uE)

Fighting Back Against Payday Lenders

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

Wisconsin lawmakers agreed on Thursday, April 22, 2010, to regulate payday lenders. Wisconsin had been the only state not to regulate this industry, which consumer advocates said allowed its rapid growth and trapped too many borrowers who take out short-term loans with high interest rates in a cycle of debt.

Questions:

1. What were some provisions of the plan?
2. According to the plan, if a person’s monthly income was $5,000, how much could he/she borrow from a payday lender?
3. Why do you think that Wisconsin was the last state to pass some type of regulation on this industry? What are the regulations on payday lenders in your state?
4. If a person wanted to take out a short-term auto title loan with a payday lender in the state of Wisconsin and had a car with a value of $14,000, how much could they borrow under this new regulation?

Source:
Bauer, S. (2010). Wisconsin Lawmakers Agree to Regulate Payday Lenders, Associated Press, April 23 (Retrievable online at http://www.google.com/hostednews/ap/article/ALeqM5jZC94QO-79DsWzWnEhQQUt0boxuAD9F8GUL83)

Corporate Sustainability Can Mean Financial Reward, Despite Extra Costs

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

Tracking efforts in companies like Wal-Mart, Hewlett-Packard and Clorox, authors Ram Nidumulo, C.K. Prahalad, and M.R. Rangaswami, identified a five-stage process that will benefit companies as they navigate through the adoption of green business models.  In the article, the authors contend that early adopters of this process will develop competencies that will be difficult for their competitors to match. They also submit that adoption of these processes by corporate leaders will be key to real change within our economy.

Required:

1. If consumers will not pay more for eco-friendly products, where do the authors suggest that profitability will come from?

2. Give a specific example of how the authors point to redesigning operations can save money.

3.  How would you define “greenwashing?” Is it a good thing or a bad thing?  Explain.

 Source: Nidumulo, Ram, C.K. Prahalad, and M.R. Rangaswami (2009). Why Sustainability Is Now the Key Driver of Innovation. Harvard Business Review, September, pp. 3-10 (Retrievable at http://graphics8.nytimes.com/images/blogs/greeninc/harvardstudy.pdf)

Late Payments Matter

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

Late Payments Matter

According to new research, approximately 4,000 small and medium sized firms in the U.K. collapsed in 2008 due to late payments by customers. This amounted to approximately 62 billion pounds that were more than 30 days late and of this 15.5 billion that were more than 120 days overdue. For more than twelve percent of these firms, over 60% of all their invoices are paid late.

Required:

1.  What can businesses do to alleviate the problems of late payments? 

2.  Explain the cash flow implications of this problem. 

3. What type of financial ratios could a company perform in order to better understand the severity of this problem? 

4.  How does the current “credit squeeze” add to the woes for both businesses and consumers?

Source: Murchie, Kay. (2010) Firms collapse due to late payments, according to research. Financial Markets – Economy News, April 15 (Retrievable at http://www.financemarkets.co.uk/2010/04/15/firms-collapse-due-to-late-payments-according-to-research/)

How to “Regroup” During a Recession

Posted by & filed under Accounting Principles, All Articles, Managerial Accounting, Video Updates.

Chris Mittelstaedt, owner of The FruitGuys, has turned his local business into a national operation by changing strategy during the recession through investment in technology and the restructuring of his operations.

Required:

1.  Based on the video, what were some of the things that Chris did to cut costs?  What disaster almost bankrupted his company?

2.   Look up the topic of “corporate wellness.” Investigate what links the company has to the concept of “corporate wellness.” Discuss how this could be important and profitable part of the company’s business strategy.

3. Look up the topic of “green business” and “sustainability.”  Is this an important part of the business strategy for the Fruit Guys?  Explain how it can impact profitability.

4. Chris mentioned that he took a “MASH unit approach” to the business.  What does this mean?  How can it translate into profits?

Source: BNET Staff, The FruitGuys: Finding Opportunity in a Recession (2010 Video) Retrievable at http://www.bnet.com/2434-18434_23-162366.html?tag=nav;n-video

Getting to the Bottom of Repurchase Agreements (or Repos)

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Financial Accounting, Fraud Accounting.

The Securities and Exchange Commission is asking public-company CFOs for better disclosures and additional information about repurchase agreements, or repos, which are the same transactions that Lehman Brothers used to make its balance sheet look healthy before the investment bank collapsed into bankruptcy. Based on company responses, the SEC could ask issuers to amend their filings or modify disclosures in future filings.

Questions:
1. Explain why this article says that Lehman’s Repo 105 transactions are destined to take a prominent place in the annals of accounting scandals.
2. Is this the first time the SEC has questioned companies about the way they apply asset-transfer accounting rules? Explain.
3. What type of ratios do these repos affect? Give an example of how this might work.

Source: Leone, M. (2010). SEC to CFOs: More Repo Disclosure CFO.com, March 31, 2010 (Retrievable at http://www.cfo.com/article.cfm/14487561/1/c_14487542?f=home_todayinfinance)

Visual Forensic Accounting Skills Are Assets In Divorce Consulting

Posted by & filed under All Articles, Auditing, Financial Accounting, Fraud Accounting, Video Updates.

Clearly laying out key ideas and arguments that support divorce proceedings are becoming a critical success factor for forensic accountants who consult in this area. As author, Dan Roam The Back of the Napkin by Dan Roam asserts visual thinking is critical in the business world and forensic accounting is no exception.  For the forensic accountant, specializing in divorce consulting, being able to effectively create visual tools such as tables, charts, diagrams, and graphs can help make and emphasize key points that are critical for laying out financial information before a judge. 

Questions:

1.  What are examples of the areas where a CPA and forensic accountant can help develop and illustrate financial matters in a divorce?  What basic financial accounting concepts are important to understand for an accountant specializing in this area?

2.  Explain why communication skills are so important for forensic accountants that specialize in divorce engagements.

3.  Why would a forensic accountant need to use the imagination part of Dan Roam’s concept of visual thinking? 

Source: Dow, Alexis. (2009). When and How to Use a Forensic Accountant in Your Divorce. THE OREGON DIVORCE BLOG October 26, 2009 (Retrievable at http://oregondivorceblog.com/wordpress/2009/10/when-and-how-to-use-a-forensic-accountant-in-your-divorce/)
Roam, Dan (2010). The Back of the Napkin promo video. BNET (Retrievable at http://www.bnet.com/2422-13724_23-196933.html# )