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.

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

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Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

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Fabrice Tourre, a controversial personality in the Goldman Sachs Group Inc transaction of 2007, asked a judge to throw out a U.S. regulator’s fraud lawsuit against him.  About two and a half months ago, the bank settled its part of the case for $550 million.

In his filing, Tourre asked that the U.S. Securities and Exchange Commission case be dismissed because the 2007 “Abacus” transaction, which involved collateralized debt obligations (CDOs) tied to subprime mortgages, took place outside the United States.

Questions:

1. What are collateralized debt obligations?

2. Where would CDOs appear in the financial statements of the bank that bought them?

3. Do you think he will prevail in his dismissal of the charges?

4.  How do you think the Goldman Sachs Group reported the $550 million settlement in its financial records?  

Source:

Stempel, J. (2010). Goldman’s Tourre says SEC suit should be dismissed, Reuters, September 30 (Retrieved online at http://www.reuters.com/article/idUSTRE68T3L120100930?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29)

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In a recent ruling, U.S. District Judge Lewis Kaplan held that a certified public accountant who hid his conviction for insider trading from his teachers at NYUs Stern School of Business wasn’t entitled to the MBA degree that he thought he earned. The former PricewaterhouseCoopers employee, Ayal Rosenthal, pleaded guilty in February 2007 to one count of conspiracy to commit securities fraud after he was accused of disclosing confidential information to his brother about a 2005 transaction between two public companies. This conviction came three months after he finished taking the necessary classes to earn his masters degree in business administration and he was sentenced to 60 days in prison. Once the faculty found out about his conviction, a committee voted to withhold the MBA from him and to alter his grade to F in his professional responsibility course, where he had been a teaching assistant. Subsequently, Rosenthal sued the Stern faculty in 2008.

Questions:

1. What constitutes insider trading? (Hint:  Look at the SEC news release http://www.sec.gov/news/press/2007/2007-17.htm)

2.  Do you think there was anything Rosenthal could have done differently to receive his MBA?

3. Do you agree with the judge’s ruling?

4.  Is Rosenthal still a CPA?

Sources:

SEC. (2007). SEC Charges Family-Run Hedge Fund With a $3.7 Million Insider Trading Scheme, February 8 (Retrievable online at http://www.sec.gov/news/press/2007/2007-17.htm)

Glovin, David (2010). Convicted Accountant Loses Legal Bid for MBA Degree, Bloomberg.com, September 13 (Retrievable online at http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=a.8EbO2qqNcQ)  

Stempel, J. (2010). No MBA for NYU student in insider trading scheme, Reuters, September 13 (Retrievable online at http://www.reuters.com/article/idUSN1319494020100913)

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Danish toy brick maker Lego Juris A/S has failed in its bid to overturn a European trade mark decision canceling European trade mark protection for its standard 2 by 4 red Lego brick in a September 14 ruling of the European Court of Justice. Lego went to court after a Canadian firm had made blocks that were so like lego blocks that they even fit the real blocks made by Lego. The European judge decided that the design of the lego blocks is not protected by European trademarks and so anyone can make the blocks.  Struggling toy maker Mega Brands Inc. is the winner in this battle as it is attempting to restore the company’s financial health through the introduction of new products.

Questions:

1. Lego patented its design in 1958.  When did those patents expire?  How is a trademark different from a patent? How are they similar? 

2. Lego is the overall world leader in construction blocks for all ages, selling C$1.6 billion worth of the blocks each year, with half the sales located in Europe. It is estimated that MegaBlocks sells about $250 million worth of the plastic blocks annually, with about one-third being bought in Europe.  If you assume that these two companies make up the total market of blocks, what percentage does each control?

3.  What type of journal entries or financial disclosures would either company have in connection with this court decision?  

4.  Do you think the court was right in its decision?  Discuss.  Why or why not?

Source:

CNN Video. (2010). Lego loses big battle, September 15 (Retrievable online at http://www.cnn.com/video/)

Gordon, M. (2010). EU Court: Lego Red Brick Trademark Not Registrable, Wall Street Journal, September 14 (Retrievable online at http://online.wsj.com/article/BT-CO-20100914-707120.html)

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WedLock is a new type of casualty insurance that gives the unhappily married policyholder a payout after he or she is divorced. It costs about $16 a month for every $1,250 of coverage. John Logan, founder of the company, figured there must be a market for those who want to hedge their marital bets. But to discourage people from signing up just prior to their divorce, policyholders must apply four years before the policy will pay out. It adds a premium of $250 per unit for every year the marriage survives beyond four.

Questions:

1.  Assume that a policyholder bought $12,500 worth of coverage and divorced after 10 years.  What would be the expense of the policy?  Show your work.

2.  Assume the same facts as in # 1.  What would be the payout of the policy? Show your work.

3.  Assume that a couple who owned a small sole proprietorship company.  After a year of successful operations, they married and bought this insurance.  Their company paid the premiums.  After buying a $20,000 policy, they divorced after 7 years.  What would be the expense to the company?  What would be the payout and how should the company record this? Give the journal entries and show your work.

Source:

Luscombe, B. (2010).Divorce Insurance: Get Unhitched, Get a Pay-Out, Time, September 19  (Retrievable at http://www.time.com/time/magazine/article/0,9171,2015772,00.html?hpt=C2)

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During the boom, Wachovia banker Robert Verrone made money by slicing and dicing billions of dollars in commercial real estate loans. After the crash, he made money by restructuring those loans before they blew up. As Wachovia’s No. 1 underwriter of securitized commercial real estate debt between 2002 and 2007, Verrone resigned just months before Wachovia nearly collapsed and was acquired by Wells Fargo at the fire sale price of $15.1 billion.

 Questions:

 1.  Why is/was he called “Large Loan” Verrone?

2.  What does his company called Iron Hound Management do? What is your opinion of his ethics as portrayed in the article?

3.  In the article, he says “”We sold every penny of cash flow to anybody in the world who wanted to buy it.”  What is he referring to?

 Source:

 Leonard, D. (2010). The Ballad of “Large Loan” Verrone, BusinessWeek, September 9 (Retrievable online at http://www.businessweek.com/magazine/content/10_38/b4195070500566.htm)

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Kenneth Starr, a celebrity financial adviser to stars including actors Wesley Snipes and Sly Stallone, was charged with carrying out a massive $30 million fraud on his clients and then spending the money on a luxury apartment and jewelry, federal prosecutors said. Starr, head of the Manhattan-based Starr and Co., was charged with wire fraud, fraud by an investment advisor, money laundering, making false statements to the IRS and lying to federal agents. On September 13, he pleaded guilty to three counts of wire fraud, money laundering, and adviser fraud as part of a $50 million fraud and faces 20 additional counts and charges by the SEC.

Questions:

1. In general, how did Starr perpetrate this fraud? 

2. What “red flags” should have been recognized by alert investors?

3. Read the criminal complaint at http://www.nypost.com/r/nypost/2010/05/27/news/media/Starr,%20Kenneth%20and%20Stein,%20Andrew%20Complaint.pdf. Based on the complaint and the articles, can you figure out who any of the personalities are in terms of their specific-numbers as Associates or Clients? What purpose did the Wind River LLC account serve and how much money went through this account? Why are the amounts in the complaint and the pleading different?

4. Based on the criminal complain, how long did this fraud last and how does that compare with the average length of time for most similar types of schemes? (Hint: Go to the Association for Certified Fraud Examiners website to obtain the average length.) What types of charges (20 additional charges) do you think he faces with the SEC?

Sources:

Barney, L. (2010). ‘Mini Madoff’ Starr Pleads Guilty to $50 Million Fraud, OnWallStreet.com, September 13 (Retrievable at http://www.onwallstreet.com/news/starr-madoff-2668709-1.html)  

Southern District of New York, (2010). The U.S. versus Kenneth Starr and Andrew Stein (18 U.S.C. 1001, 1343 & 1956; 15 U.S.C. 80b-6 & 80b-17; 26 U.S.C. 7206 (1), May 26 (Retrievable at http://www.nypost.com/r/nypost/2010/05/27/news/media/Starr,%20Kenneth%20and%20Stein,%20Andrew%20Complaint.pdf)

Weiss, M.,  L. Cartwright, and B. Golding. (2010) Manhattan Financial Adviser to Celebs is Charged with Scamming Clients, New York Post, May 28 (Retrievable at http://www.nypost.com/p/news/local/nyc_financial_adviser_to_celebrities_DXslLxEwDlkAkxcooYs4pN#ixzz0zET4uSO5)

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Over one weekend in August 2010, the Catholic Diocese of Des Moines, Iowa, fell victim to a $600,000 ACH fraud theft, thus, becoming another in the growing list of businesses and entities that have suffered huge losses as a result of these frauds.

Questions:

1. Based on the article, what do you calculate as the average estimate per incident of these recent crimes?  How does the church crime compare?

2. What does ACH stand for? What type of litigation do you anticipate might arise from this incident?

3. Investigate the other victims of the corporate account take-overs mentioned in the article. What type of internal controls do you think were violated in order to perpetrate these frauds?  

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When Allison Brooke Eastman’s fiancé found out four months ago just how high her student loan debt was, he broke off their engagement within three days. Although she had told him early in their relationship that she had over $100,000 of debt, when she found that the amount was actually about $170,000, he accused her of lying and walked away from their impending nuptials.

 
Questions:
1. The article mentions that Ms. Eastman pays $1,100 a month for her student loan debt. Assuming that no interest is involved, how many years will it take her to pay off the $170,000?

 
2. Assume that Ms. Eastman must pay 6% interest on the declining balance of the loan. Based on this assumption, how many years will it take her to pay off the $170,000?

 
3. Do you agree with New York divorce law that advanced degrees acquired during the marriage, as well as the earnings power they bring, should be treated as assets to be divided in case of divorce? Why or why not?

 
Source:

 
Lieber, R. (2010). How Debt Can Destroy A Budding Relationship. The New York Times, September 3 (Retrievable at http://www.nytimes.com/2010/09/04/your-money/04money.html?ex=1299643200&en=297c3a5871503c4b&ei=5087&WT.mc_id=BU-D-I-NYT-MOD-MOD-M166-ROS-0910-L2&WT.mc_ev=click)

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The world’s movie capital is not Hollywood but Bollywood. Bollywood is the nickname for the Indian film industry located in Bombay. Fourteen million Indians go to the movies on a daily basis (about 1.4% of the population of 1 billion) and pay the equivalent to the average Indian’s day’s wages (US $1-3) to see any of the over 800 films churned out by Bollywood each year. That’s more than double the number of feature films produced in the United States. However, as this video presents, more movie productions in Bollywood will undergo budget cuts due to economic risks and the push for profits.

Questions:

1. The article tells about the 10 most high budget films of Bollywood. Look at the budget for Love Story 2050. If 1 crore rupee = 10,000,000 rupees, use the Currency Converter at http://coinmill.com/INR_USD.html to find out how many U.S. dollars this is. How does this compare to the average budget for a Hollywood movie?

2. In the article, look at the movie “Singh is Kinng.” This film had the title track song sung by Snoop Dogg. Snoop Dogg was paid 7 crores for this. What percent of the movie’s total budget was this?

3. In the article, look at the movie “Ghajini.” What percentage of profits were made on this movie?

 
Source:

Staff (2009). 10 Most High Budget Films of Bollywood. Full Dhamaal, August, 19 (Retrievable online at http://www.fulldhamaal.com/bollywood-critics/10-most-high-budget-films-of-bollywood-21146.htm)
Video (2010). Budget Bollywood Success, September 7. (Retrievable at http://www.cnn.com/video/)