Description
Week 2 forum
The following is an excerpt from a conversation between Eric Jackson and Carlie Miller. Eric is debating whether to buy a stereo system from First Audio, a locally owned electronics store, or Dynamic Sound Systems, an online electronics company.
Eric: Carlie, I don’t know what to do about buying my new stereo.
Carlie: What’s the problem?
Eric: Well, I can buy it locally at First Audio for $890.00. But Dynamic Sound Systems has the same system listed for $899.99.
Carlie: So what’s the big deal? Buy it from First Audio.
Eric: It’s not quite that simple. Dynamic Sound Systems said something about not having to pay sales tax, since I was out of state.
Carlie: Yes, that’s a good point. If you buy it at First Audio, they’ll charge you 6% sales tax.
Eric: But Dynamic Sound Systems charges $13.99 for shipping and handling. If I have them send it next- day air, it’ll cost $44.99 for shipping and handling.
Carlie: I guess it is a little confusing.
Eric: That’s not all. First Audio will give an additional 1% discount if I pay cash. Otherwise, they will let me use my VISA, or I can pay it off in three monthly installments.
Carlie: Anything else???
Eric: Well… Dynamic Sound Systems says I have to charge it on my VISA. They don’t accept checks.
Carlie: I am not surprised. Many online stores don’t accept checks.
Eric: I give up. What would you do?
1. Assuming that Dynamic Sound Systems doesn’t charge sales tax on the sale to Eric, which company is offering the best buy?
2. What might be some considerations other than price that might influence Eric’s decision on where to buy the stereo system?
Week 3 forum
The following is an excerpt from a conversation between two sales clerks, Tracy Rawlin and Jeff Weimer. Both Tracy and Jeff are employed by Magnum Electronics, a locally owned and operated electronics retail store.
Tracy: Did you hear the news?
Jeff: What news?
Tracy: Bridget and Ken were both arrested this morning.
Jeff: What? Arrested? You’re putting me on!
Tracy: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights— the whole works. It was unreal!
Jeff: What did they do?
Tracy: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash.
Jeff: I guess I never thought of that. How did they catch them?
Tracy: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Bridget, she became flustered and admitted to taking the cash, apparently over $ 15,000 in just three months. They’re going over the last six months’ transactions to try to determine how much Ken stole. He apparently started stealing first.
Suggest appropriate control procedures that would have prevented or detected the theft of cash.
Jas Carillo was discussing summer employment with Maria Perez, president of Valparaiso Construction Service:
Maria: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help.
Jas: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses.
Maria: I’ve got a plan that can help you out on that. As you know, I’ll pay you $4 per hour; but in addition, I’d like to pay you with cash. Since you’re only working for the summer, it really doesn’t make sense for me to go to the trouble of formally putting you on our payroll system. In fact, I do some jobs for my clients on a strictly cash basis, so it would be easy to just pay you that way.
Jas: Well, that’s a bit unusual, but I guess money is money.
Maria: Yeah, not only that, it’s tax-free!
Jas: What do you mean?
Maria: Didn’t you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesn’t know about the income—hence, it’s the same as tax-free earnings.
a. Why does Maria Perez want to conduct business transactions using cash (not check or credit card)?
b. How should Jas respond to Maria’s suggestion?
Marriott International, Inc., and Wyndham Worldwide Corporation are two major owners and managers of lodging and resort properties in the United States. Abstracted income statement information for the two companies is as follows for a recent year:
|
X |
Marriott |
Wyndham |
|
X |
(in millions) |
(in millions) |
|
Operating profit before other expenses and interest |
$695 |
$718 |
|
Other income (expenses) |
36 |
12 |
|
Interest expense |
(180) |
(167) |
|
Income before income taxes |
$551 |
$563 |
|
Income tax expense |
93 |
184 |
|
Net income |
$458 |
$379 |
Balance sheet information is as follows:
|
x |
Marriott |
Wyndham |
|
x |
(in millions) |
(in millions) |
|
Total liabilities |
$7,398 |
$6,499 |
|
Total stockholders’ equity |
1,585 |
2,917 |
|
Total liabilities and stockholders’ equity |
$8,983 |
$9,416 |
The average liabilities, stockholders’ equity, and total assets were as follows:
|
x |
Marriott |
Wyndham |
|
x |
(in millions) |
(in millions) |
|
Average total liabilities |
$7,095 |
$6,582 |
|
Average total stockholders’ equity |
1,363 |
2,802 |
|
Average total assets |
8,458 |
9,384 |
1. Determine the following ratios for both companies (round to one decimal place after the whole percent):
a. Rate earned on total assets
b. Rate earned on total stockholders’ equity
c. Number of times interest charges are earned
d. Ratio of liabilities to stockholders’ equity
2. Analyze and compare the two com
The following conversation took place between Dean Lancaster, vice president of marketing, and Dina Conaway, controller of Redwood Computer Company:
Dean: I am really excited about our new computer coming out. I think it will be a real market success.
Dina: I’m really glad you think so. I know that our success will be determined by our price. If our price is too high, our competitors will be the ones with the market success.
Dean: Don’t worry about it. We’ll just mark our product cost up by 25% and it will all work out. I know we’ll make money at those markups. By the way, what does the estimated product cost look like?
Dina: Well, there’s the rub. The product cost looks as if it’s going to come in at around $1,000. With a 25% markup, that will give us a selling price of $1,250.
Dean: I see your concern. That’s a little high. Our research indicates that com-puter prices are dropping and that this type of computer should be selling for around $900 when we release it to the market.
Dina: I’m not sure what to do.
Dean: Let me see if I can help. How much of the $1,000 is fixed cost?
Dina: About $300.
Dean: There you go. The fixed cost is sunk. We don’t need to consider it in our pricing decision. If we reduce the product cost by $300, the new price with a 25% markup would be right at $875. Boy, I was really worried for a minute there. I knew something wasn’t right.
a. If you were Dina, how would you respond to Dean’s solution to the pricing problem?
b. How might target costing be used to help solve this pricing dilemma?
The following is an excerpt from a conversation between two employees of Linquest Technologies, Don Corbet and Rita Shevlin. Don is the accounts payable clerk, and Rita is the cashier.
Don: Rita, could I get your opinion on something?
Rita: Sure, Don.
Don: Do you know Margaret, the fixed assets clerk?
Rita: I know who she is, but I don’t know her real well. Why?
Don: Well, I was talking to her at lunch last Tuesday about how she liked her job, etc. You know, the usual … and she mentioned something about having to keep two sets of books … one for taxes and one for the financial statements. That can’t be good accounting, can it? What do you think?
Rita: Two sets of books? It doesn’t sound right.
Don: It doesn’t seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What could be the difference between the two?
How would you respond to Rita and Don if you were Margaret?
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