Web research: Consolidated Statements of Cash Flows

Go to the website of Johnson & Johnson at http://www.jnj.com. Click on Annual Reports and Proxy under Investor Relations. Then open the most recent Annual Report and click on Financials. Click on Consolidated Financial Statements and then Consolidated Statements of Cash Flows. Examine the operating, investing, and financing activities sections.

What is the most significant source of cash for Johnson & Johnson? What is the most significant use of cash for Johnson & Johnson? Why do you think these sources and uses are significant for this company?

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
20 Oct 08 10:22 PM MST

Initial Post: Jill Stidd

In 2007 it seemed most significant source of cash for Johnson & Johnson was from their pharmaceutical lines, with 41% of their sales at $24.9 billion dollars, Topamax increased it revenues the most at a large 21% and misc “other” had the most sales at 5.4 billion. Medical Devices and Diagnostics is the next in line with 35% of their sales at $21.7 billion dollars, vision care grew the most in this category with an 18% increase. However Depuy had the most sales in billions at 4.6.

I determined from my analysis of the statement of cash flows that the most significant use of cash was for retirement of short-term debt at $21,691. With all there research and development expenses I would think that it would produce some debt. However it seems they were very aggressive in paying that back. That always looks great to stockholders.

I thought I would give a stab at evaluation financial analysis of cash flows for Johnson and Johnson using the calculations we were given in our text page 712.

Cash flows from operating activitiesLess: Investments in fixed assets to maintain current productionFree cash flow$15,249 (Cash flows from operating activities) - $2,942 (Additions to property, plant and equipment) = $12,307 which is a positive cash flow and would because you would use this formula to evaluate retiring debt as just one example it seems they had enough cash flow to retire the amount of debt that they did.

Ethics discussion: Cash flow

Cash flow per share may appear to be a valuable measurement of the operating success of a business. However, it can be misinterpreted by users of the financial statements.

Linda Stern, president of Venician Fashions Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Linda Stern and Venician Fashions’ controller, Ben Trotter, in January, after the close of the fiscal year.
Linda: I have been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This is not going to look good to our shareholders. Isn’t there anything we can do about this?Ben: What do you mean? The past is the past, and the numbers are in. There isn’t much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I don’t see much leeway for significant change at this point.Linda: No, no. I’m not suggesting that we “cook the books.” But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good news—and, I might add, useful information. The higher cash flow from operating activities will give our creditors comfort.Ben: Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there.Linda: This is true, but somehow I feel that this information should be given a much higher profile. I don’t like this information being “buried” in the statement of cash flows. You know as well as I do that many users will focus on the income statement. Therefore, I think we ought to include an operating cash flow per share number on the face of the income statement—someplace under the earnings per share number. In this way users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think?Ben: I’ve never really thought about it like that before. I guess we could put the operating cash flow per share on the income statement, under the earnings per share. Users would really benefit from this disclosure. Thanks for the idea—I’ll start working on it. Linda: Glad to be of service.

How would you interpret this situation? Is Ben behaving in an ethical and professional manner?
http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1



My Response:
Jill Stidd
17 Oct 08 11:47 AM MST

Unless there is a law that I could not find in regards to reporting operating cash flow per share it seems that it is a used ratio by those that evaluate all the financial reports. This is an explanation that I took off the U.S. Securities and Exchange website for earning per share. “Income statements also report earnings per share (or “EPS”).

This calculation tells you how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. (Companies almost never distribute all of their earnings. Usually they reinvest them in thebusiness.)”
(http://www.sec.gov/investor/pubs/begfinstmtguide.htm)

I might be confused on this question, however if reporting earnings per share is ethical than I do not see why it would not be ethical to report operating cash per share if nothing has been “cooked”.This is a section off another website that I found in terms of the calculation to find cash flow per share. I might point out the header that states” that this calculation measures a firm’s financial strength.” I can see why Linda saw the importance of putting cash flow per share on the income statement. Again unless there is something that I do not know about adding random sections to the income statement than I would think what she has requested is logical.

A measure of a firm's financial strength, calculated as follows:However I also acknowledge because this EPS can be easily manipulated, it would be important to question its accuracy. “Many analysts, as well as some of the greatest investors of all time, place more weight on cash flow per share than earnings per share. Because EPS is more easily manipulated, its reliability can at times be questionable. Cash, on the other hand, is difficult - if not impossible - to fake. You either have cash or you don't. Therefore, cash flow per share is a useful measure for the strength of a firm and the sustainability of its business model.”
(http://www.answers.com/topic/cash-flow-per-share)

From all that I read in this question it seems to me that Linda only wanted to high light what was positive on her company’s reports. She was not changing any figures and she had to clearly show what had dropped. It seems that she was clear that she did not to “cook” the books and she reinforced that to her controller. I would have to say I do not see anything unethical about either one of them as long as they were not altering any figures and only reporting the actual figures from the year’s business.

Ethics discussion: Bonds

Go to the website of Moody's Investors Service at http://www.moodys.com/. You will need to register at this site in order to access information. Once you have registered, login to the Moody's site. Then click on Ratings News, where you will see several announcements of recent bond rating changes. Open and read 3-4 of these announcements and note the reasons for the rating downgrades or upgrades.
If you were a bond investor, would you care if Moody's changed the rating on your bonds? Why or why not? If you were a bond issuer, would you care if Moody's changed the rating on your bonds? Why or why not?

My Response:
Jill Stidd
12 Oct 08 3:52 PM MST

Initial Post: Jill Stidd

After looking at the four or so announcements and notes it was obvious that Moody was very thorough in there analysis and reasons for their rating. Their descriptions were straight forward and easy to understand as to why they were downgrading or upgrading the ratings.After going to Mood’s website and researching the Moody company it was very interesting to go to their “about us” page and their rating philosophy, “that is why Moody's uses a multidisciplinary or "universal" approach to risk analysis, which aims to bring an understanding of all relevant risk factors and viewpoints to every rating analysis. We then rely on the judgment of a diverse group of credit risk professionals to weigh those factors in light of a variety of plausible scenarios for the issuer and thus come to a conclusion on what the rating should be. Several analytical principles guide that reasoning process.”
(http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproac)

I also found their ratings descriptions easy to understand and informative. (http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=rdef&subtopic=moodys%20credit%20ratings&title=View+All+Rating+Definitions.htm)Some Basic Principles According to Moody Co.1. Emphasis on the Qualitative, 2. Focus on the Long-Term, 3. Global Consistency, 4. Level and Predictability of Cash Flow, 5. Reasonably Adverse Scenarios, 6. "Seeing Through" Local Accounting Practices.

I found it interesting in # 4 Level and Predictability of Cash Flow that this is their approach, “In every sector, the foundation of Moody's rating approach rests on the answer to one question: What is the level of risk associated with receiving full and timely payment of principal and interest on this specific debt obligation and how does that risk compare with that of all other debt obligations? When we speak of "risk to timely payment," we are measuring the ability of an issuer to generate cash in the future. Our analysis focuses, therefore, on an assessment of the level and predictability of an issuer's future cash generation in relation to its commitments to repay debtholders.”
(http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproach)

It seems given this description of how Mood’s ratio analysis works, along with the experts that are involved with this diagnosis that they have a reputation for accurate data. It seems that it is data that both the bond issuer and the bond investor would hold very valuable in terms of making decisions. The change in ratings would absolutely be important to both. Obviously and investor would think twice about a transaction with a company that has a low rating. However the low rating might indicate that an investor watch this company for a time to see If there are any good deals to be had. So it is a tool an investor can use on many levels. As for the bond issuer, well seeing how their company is being evaluated is always good information to have. As the saying goes, “someone from the outside looking inside”. They would not want a lower rating so I would assume it would be this kind of “watchdog” shall we say that might make a company think twice of inappropriate actions.

http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproac retrieved, October 12, 2008.http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=rdef&subtopic=moodys%20credit%20ratings&title=View+All+Rating+Definitions.htm retrieved, October 12, 2008.

Ethics discussion: Bonds

When corporations issue bonds, the buyers of those bonds (the investors) should try to determine the impact of the bond issuance on the expected earnings of the corporation.

General Electric Capital, a division of General Electric, uses long-term debt extensively. In early 2002, GE Capital issued $11 billion in long-term debt to investors, then within days filed legal documents to prepare for another $50 billion long-term debt issue. As a result of the $50 billion filing, the price of the initial $11 billion offering declined (due to higher risk of more debt).
Bill Gross, a manager of a bond investment fund, “denounced a ‘lack in candor’ related to GE’s recent debt deal. ‘It was the most recent and most egregious example of how bondholders are mistreated.’ Gross argued that GE was not forthright when GE Capital recently issued $11 billion in bonds, one of the largest issues ever from a U.S. corporation. What bothered Gross is that three days after the issue the company announced its intention to sell as much as $50 billion in additional debt, warrants, preferred stock, guarantees, letters of credit and promissory notes at some future date.”

In your opinion, did GE Capital act unethically by selling $11 billion of long-term debt without telling those investors that a few days later it would be filing documents to prepare for another $50 billion debt offering?

Source: Jennifer Ablan, “Gross Shakes the Bond Market; GE Calms It, a Bit,” Barron’s, March 25, 2002.

My Response:



It is true from CNNMoney that the 11 billion in bonds that were issued in 2002, CNNMoney states, “GE Capital sold $11 billion in global bonds Wednesday, the second-biggest U.S. issue ever as the company sought to lock in low financing costs before the economy recovers.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm)

This article interestingly goes on to say that who else but WorldCom was the other company that has beat out GE is bond issues just a few months prior issuing 11.9 billion in bonds. Now is that not interesting, WorldCom.Not only did they then sell the 50 billion 3 month later, they had sold 3.5 billion in notes just one month before and on the heels of that released a expanded annual report, “It also comes five days after GE released an expanded annual report to soothe investors who have been jittery about sprawling companies with complicated accounting, such as Enron Corp. (ENE: Research, Estimates) and Tyco International Ltd.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm).

Given the quote by CNN and the Quote in the ethics question by Bill Gross, there was a great deal of speculation about this deal. I also feel that from the quote in the CNN article that Yes, GE was very much aware of the “jitters” of there investors especially due to Enron, and Tyco international. So why would they make such a bold step 3 months later when ethics were being so scrutinized at that time.Even American Express Asset Management team had something to say about all of this, “But not everyone was cheered by the news. Tim Doubek, a portfolio manager at American Express Asset Management in Minneapolis, said the bonds could only hurt investors if negative news persists about accounting, corporate earnings and management.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm)

In that GE could make this decision to sell another 50 billion on the heels of the 11 billion, they like some of the big corporations these days added fuel to the fire of public trust yet again! How unfortunate and unethical! What is it going to take to get all this type of behavior to stop? Look at the mess our economy is in at the present. How low do we have to go I ask?

(http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm), retrieved October 11, 2008,

Web Research: Dividends

Go to the website of General Electric Corporation at http://www.ge.com/en and find information about GE's dividend record. Click on For Investors and then Stock Information to find the current market price of a share of GE stock. Then click on Dividend History to find the record of dividends paid per share of GE stock. Calculate the dividend yield of GE's common stock.
Discussion Question

What is GE's dividend yield? Is this dividend yield what you might expect from an established company like GE? Is GE's record of paying dividends an attractive feature of its common stock? Why or why not?

My Response:
Jill Stidd
6 Oct 08 3:46 PM MST

Here are a few things that I found in my research on the press that was on the GE website, it was very interesting to see that GE is parent company of NBC, I did not know that. These website are just packed full of information that I never even knew existed.

1.Aviation and jet enginesAviation and jet engines aren't the only way GE will try to tap this market, but they are a key: China is slated to open more than 40 new airports by 2010 -- at the end of 2006, the country had 147 -- and another 55 or so by 2020. The country's evolving airport geography is like a treasure map that pinpoints where the government is going to make massive investments. (http://www.fastcompany.com/magazine/125/all-systems-go.html)
2. NBC ratings for the olympicsRatings for NBC, the GE-owned television network and the holder of Olympic television rights in the United States, soared with each breathtaking performance by the Baltimore Bullet after a controversial decision to turn tradition on its head and stage the swimming finals in the morning so that the medal moments could fall sweetly into American prime time. (http://business.timesonline.co.uk/tol/business/industry_sectors/media/article4576410.ece
3. GE Gas turbines for olympicsTwo of General Electric's 9FA gas turbines have been installed in Beijing's Taiyanggong power plant, which will supply electricity, heat and air conditioning to the central area of the Olympic Games in August.( http://www.marketwatch.com/news/story/how-china-power-olympic-games/story.aspx?guid=%7B43798B25-F2A1-499A-AA93-BDE9A9FD147E%7D&dist=msr_27)
4. Wind powerIn March, GE Energy announced it had secured a $1 billion deal to supply 750 megawatts of wind turbines -- enough to power about 200,000 households.

(http://www.reuters.com/article/domesticNews/idUSN1835150320080519?pageNumber=2&virtualBrandChannel=10112)http://www.fastcompany.com/magazine/125/all-systems-go.html retrieved October 5, 2008http://www.marketwatch.com/news/story/how-china-power-olympic-games/story.aspx?guid=%7B43798B25-F2A1-499A-AA93-BDE9A9FD147E%7D&dist=msr_27 retrieved October 5, 2008http://business.timesonline.co.uk/tol/business/industry_sectors/media/article4576410.ece retrieved October 5, 2008http://www.reuters.com/article/domesticNews/idUSN1835150320080519?pageNumber=2&virtualBrandChannel=10112 retrieved October 5, 2008

Ethics discussion: Dividends

When stockholders receive money from the corporation in which they hold stock, it is usually the result of dividends being declared and paid or the stock being repurchased by the corporation. When the stockholder is also an employee of the corporation, the stockholder also is also paid a salary. But other opportunities for the stockholder/employee to receive money may arise, and these may present an ethical dilemma for the corporation and its board of directors.

Bernie Ebbers, the CEO of WorldCom, a major telecommunications company, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’ bankers threatened to sell his stock in order to protect their loans. To avoid having his stock sold, Ebbers asked the board of directors of WorldCom to loan him nearly $400 million of corporate assets at 2.5% interest to pay off his bankers. The board agreed to lend him the money.
Comment on the decision of the board of directors in this situation.

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
3 Oct 08 3:03 PM MST

Initial post: Jill Stidd

From our text I would like to start by defining the role of the board of directors, “the stockholders control of the corporation is by electing a board of directors. This board meets periodically to establish corporate policies. It also elects the chief executive officer (CFO) and other major officers to manage the day to day corporation’s affairs.” (Warren, Reeve, and Duchac, p.569)

I do know that it is the board’s responsibility to create the policies and procedures for the corporation it is not stated if there was any policy around how the employee could use the stock. I do not think that the CFO can purchase stock from the corporation unless it is treasury stock provided by the corporation. So the stock initial sale was approved by the board of directors that we know. I it seems that the CFO could use the stock in any manner he chose given that the policies of the company did not state otherwise. We were asked to look at the ethics box on page 579, in this instance the dean of the school of business stated that the professor should not use his own money to purchase stock since he was “affiliated” with the program he was researching and had an unfair advantage of information.

I really do not see where this applies to our discussion, unless there is some conflict of interest that we are not aware of. From previous chapters part of internal controls is that there should be a red flag if there is evidence that someone in charge of financials is in financial trouble, strong potential for fraud, especially if it is the CFO! This could be in violation of Sarbanes and Oxley Act in regards to internal controls. The board of directors should have been taking stronger measures to monitor the CFO and certainly not loaning this amount of money to him. However, the board of directors has the authority to do so, given the ethics box on page 569, there is a possibility that the loan amount, should the CFO default and stock holders find out could file a suite that the director’s personal assets could be responsible to.

I am sure the board of directors saw some “benefit” of 2.5% interest on $4,000.00, again we are not given all the terms of the loan to know exactly how much they could collect in interest!!! The stockholders would not see this as ethical I am sure and public trust would be compromised as was Erron, WorldCom and Fannie Mae.Warren, Reeve, and Duchac, Accounting. P. 569, 578,579.

Web research: Stocks

Go the website of Starbucks Corporation at http://www.starbucks.com/aboutus and find information that you would use in developing a company profile. Click on the company, and then click on and read the brief Company Fact Sheet and Mission Statements. Then go back to the about us page and click on investor relations. Click on stock information and find the current price of the company’s stock and the high and low price of each share during the past year.
Discussion Question

How did Starbucks get its name? What is the current price of a share of Starbucks stock? What was the high and low price of a share of Starbucks stock during the past year? Does Starbucks Corporation appear to have an operating philosophy that is similar or dissimilar to other corporations? Do you think this philosophy is serving Starbucks well?

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
26 Sep 08 8:24 PM MST

I know that this post is a bit long winded,,,but I thought all these bits of information were so interesting along with all the “data” we were to get for this post. I like real life stuff. I also do not like to take simply what their website says but look further into what others are saying to get to the truth of thier statements.I wanted to find a little more details on the origination of Starbucks, It was very interesting to see where the first vision of three men started. “Starbucks began in 1971 when three academics—English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle. The three partners shared a love of fine coffees and exotic teas and believed they could build a clientele in Seattle much like that which had already emerged in the San Francisco Bay area. Each invested $1,350 and borrowed another $5,000 from a bank to open the Pikes Place store. Baldwin, Siegel, and Bowker chose the name Starbucks in honor of Starbuck, the coffee-loving first mate in Herman Melville's Moby Dick(so company legend has it), and because they thought the name evoked the romance of the high seas and the seafaring tradition of the early coffee traders. The new company's logo, designed by an artist friend, was a two-tailed mermaid encircled by the store's name. (http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html)

It was obvious that the inspiration for these 3 men came from Aflred, Peet, “The inspiration for the Starbucks enterprise was a Dutch immigrant, Alfred Peet, who had begun importing fine arabica coffees into the United States during the 1950s. Peet viewed coffee as a fine winemaker views grapes, appraising it in terms of country of origin, estates, and harvests. Peet had opened a small store, Peet's Coffee and Tea, in Berkeley, California, in 1966 and had cultivated a loyal clientele. (http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html)

After reading about how Schultz came on board with the company “In 1981, Howard Schultz, vice president and general manager of U.S. operations for Hammarplast—a Swedish maker of stylish kitchen equipment and housewares—noticed that Starbucks was placing larger orders than Macy's was for a certain type of drip coffeemaker. Curious to learn what was going on, he decided to pay the company a visit. The morning after his arrival in Seattle, Schultz was escorted to the Pikes Place store by Linda Grossman, the retail merchandising manager for Starbucks. A solo violinist was playing Mozart at the door, with his violin case open for donations. Schultz immediately was taken by the powerful and pleasing aroma of the coffees, the wall displaying coffee beans, and the rows of red, yellow, and black Hammarplast coffeemakers on the shelves. As he talked with the clerk behind the counter, the clerk scooped out some Sumatran coffee beans, ground them, put the grounds in a cone filter, poured hot water over the cone, and shortly handed Schultz a porcelain mug filled with the freshly brewed coffee. After three sips, Schultz was hooked. He began asking the clerk and Grossman questions about the company, about coffees from different parts of the world, and about the different ways of roasting coffee. (http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html)

As a man that knew nothing about coffee or brewing after visiting the Pikes Place store he was sold on the idea and approached the three owner to hire him. After much effort on Shultz part they hired him as the marketing director .I was interested to see why they were so resistant to his visionary ideas. I was really trying to see how Peets coffee and tea were involved, I found out that later the 3 owners of Pikes Place store also purchased Peet’s coffee and tea, located in San Francisco with about all the funds they had and there was nothing left to promote Shultz’s idea to expand locations. “But a more pressing reason for their resistance emerged shortly—Baldwin and Bowker were excited by an opportunity to purchase Peet's Coffee and Tea. The acquisition took place in 1984; to fund it, Starbucks had to take on considerable debt, leaving little in the way of financial flexibility to support Schultz's ideas for entering the beverage part of the coffee business or expanding the number of Starbucks stores.”
(http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html)

How strange that after various interactions with Shultz and Baldwin as owners of Starbucks and Shultz’s decision to go on his own that Baldwin would be involved yet again. “Ironically, as Schultz was finalizing the documents for his new company, Jerry Baldwin announced he would invest $150,000 of Starbucks' money in Schultz's coffee-bar enterprise, thus becoming Schultz's first investor. Baldwin accepted Schultz's invitation to be a director of the new company, and Gordon Bowker agreed to be a part-time consultant for six months. Bowker urged Schultz to make sure that everything about the new stores—the name, the presentation, the care taken in preparing the coffee—was calculated to lead customers to expect something better than competitors offered. Bowker proposed that the new company be named Il Giornale (pronounced ill jor-nahl-ee ) Coffee Company, a suggestion that Schultz accepted. In December 1985, Bowker and Schultz made a trip to Italy during which they visited some 500 espresso bars in Milan and Verona, observing local habits, taking notes about decor and menus, snapping photographs, and videotaping baristas in action.”
(http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html)To the question of Starbucks operating philosophy two things stood out for me…1. That Starbucks bases there attention on the employees that it hires for reasons that are very smart most companies even though they might understand this concept do not have the passion that Starbucks does, “Starbucks recognizes competitors can replicate products, but they can’t replicate people. That’s precisely why the company focuses so much attention on the employee experience, because it is employees who create meaningful connections with customers. Many marketers view employee relations as a job solely for human resources—they see employees as tools. But employees—happy, rewarded employees—can work wonders for the company’s marketing efforts. There is no better spokesperson for a company, product, and brand than someone who is happy with his job and respected by his employer and peers. A happy employee will in turn, make customers happy.”2. I found it very interesting that Starbuck has stock options for its employees. “Starbucks has more than 172,000 partners (employees) worldwide as of September 2007. Eligible part- and full-time partners qualify for a comprehensive benefit package that includes healthcare benefits and stock option grants through Bean Stock,Starbucks company-wide stock option plan. Starbucks is committed to maintaining the quality, integrity and great taste of coffee as the company grows. “We have the mostknowledgeable workforce in our industry,” says Schultz. “I take great pride, not in the number of stores we have opened, but in the growth and development of our people.”(http://tribalknowledge.biz/discussion-tribal-truths/33-the-employee-experience-matters)I think both of these topics do set Starbucks apart from other companies in terms of their operating philosophy, and I also feel that it is this commitment to their employees that creates the successes that they have had.In terms of stocks:Data as of 09/26/08 4:00 p.m. ET / $14.96 / 52 Week High$27.82/ 52 week Low $13.33Sept, 26, 2007 $27.09.

(http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-stockQuote)http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html retrieved: September 26, 2008http://tribalknowledge.biz/discussion-tribal-truths/33-the-employee-experience-matters retrieved: September 26, 2008http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-stockQuote retrieved: September 26, 2008

Ethics discussion: Stocks

The par value assigned to a share of stock bears no relationship to the market value of that share of stock (i.e., the price at which the stock sells to an investor/owner.) The market value, however, should reflect some real or perceived value of the corporation.
Gigi Liken and Ron Bobo are organizing Gold Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Gigi and Ron tentatively plan to request authorization for 75,000,000 shares of common stock to be sold to the general public. Gigi and Ron have decided to establish par of $1 per share in order to appeal to a wide variety of potential investors. Gigi and Ron feel that investors would be more willing to invest in the company if they received a large quantity of shares for what might appear to be a "bargain" price.
Discuss whether Gigi and Ron are behaving in a professional manner.

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My response:

Jill Stidd
26 Sep 08 2:07 PM MST

Given the description in our book on page 574 in regards to stock prices, “the price at which stock can be sold by a corporation depends on a variety of factors. 1. Financial record, earnings record, and dividend record of the corporation. 2. Investors expectations of the corporations earning potential. 3. General business and economic conditions and prospects.” (Warren, Reeve, and Duchac, p.574)

I would be important to know if Gigi Liken and Ron Bobo had any of these discussions or evaluations. That was not stated in the post exactly. However what was stated was that there reason was for determining the price of $1 was that the investors would be more willing to invest in the company if they received a large quantity of shares for what would be a “bargain” price. I also understand that this corporations was also a “high-risk” venture and that would be even more reason to create this “bargain” price, but if it does not fall under three factors stated then it is not appropriate and not ethical.Out text also states in regards to discounted stock this, “many states do not permit stocks to be sold at a discount, in others it may be done only under unusual conditions.”(Warren, Reeve, and Duchac, p.574)

I researched the web for whether it was legal to sell discounted stock in Canada and could not get a definite answer. But because our text does not even illustrate discounted stocks due the rareness I would have to say that Gigi and Ron were not deriving their price for the stocks for their company in the proper format and using the 3 guides listed above.

Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.

Web Research: Contingencies

Go to the website of Altria Group, Inc. at http://www.altria.com/. Click on Annual Reports and select the most recent annual report available. Click on Financial Review, and then click on Notes to Consolidated Financial Statements. Scroll down to find the note on Contingencies and read two or three pages of this note.
Discussion Question
Please respond to this Discussion Question using the information from the Web Field Trip above. Take time to review the responses of your classmates and provide your feedback.
In your Web Field Trip, you were asked to research the contingent liabilities of Altria Group, Inc. What are the major business units of Altria Group? Why do you think the Altria Group Annual Report has so much discussion of contingencies? Based on your brief review of the Contingencies note, are you confident that Altria Group has reported ALL its liabilities?

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
20 Sep 08 1:27 PM MST

This financial page supports the subsidiaries that Altria owns, however I would like to add Kraft to this list as well, “Altria Group, Inc. is the name of the parent company of Philip Morris USA Inc., John Middleton Co., and Philip Morris Capital Corporation. As of December 31, 2007, Altria Group also holds a 28.5% economic interest in SABMiller plc. (http://www.altria.com/investors/2_6_1_financialnews.asp)

I have to say that my research after reading the many pages of contingencies, litigations, and lawsuits that the tobacco industry produced have created amazing liabilities for the subsidiaries. It makes me question the fact that there was a name change to Altria Group, “The name change to Altria Group, Inc. was effective January 27, 2003. All news releases in this Financial News section of our Web site, prior to this change, will refer to the parent company's former name of Philip Morris Companies Inc. “ (http://www.altria.com/investors/2_6_1_financialnews.asp)

The second question /concern for me was reading about the “spin-off” of shares by both Phillip Morris and Kraft very recently, “On March 28, 2008, Altria completed the spin-off of 100% of the shares of Philip Morris International to Altria’s shareholders.(http://www.altria.com/investors/2_6_1_financialnews.asp).

The Board of Directors of Altria Group, Inc. voted on January 31, 2007, to authorize the spin off of all shares of Kraft Foods Inc. owned by Altria to Altria's shareholders. The distribution of the approximately 88.9% of Kraft's outstanding shares owned by Altria was made on March 30, 2007, to Altria shareholders of record as of 5:00 p.m Eastern Time on March 16, 2007” (http://www.altria.com/investors/2_2_2_kraftspinoff.asp).

I think that the amount of liability due to the contingencies was to great a burden for Altria. It is very clear from the mission statement of the company that they are trying to stress change and improvements for the industry’s that they have purchased. There was a great deal of transactions happening during 2007 with all these spin-offs. What I did read from the Altria company was about their level of integrity. “Altria Group's scale, market position, balance sheet strength and improved operational focus make the company one of the most compelling investment opportunities available in tobacco and consumer products.” (http://www.altria.com/investors/2_1_strategyfinancialgrowth.asp)

Ultimately I feel that they are committed to proper reporting for the integrity of their company, the historic subsidiaries that they have purchased, and the shareholders that are scrutinizing their every move.

http://www.altria.com/investors/2_6_1_financialnews.asp retrieved September 20,2008.http://www.altria.com/investors/2_2_2_kraftspinoff.asp retrieved September 20,2008.http://www.altria.com/investors/2_1_strategyfinancialgrowth.asp retrieved September 20,2008.

Ethics discussion: Payroll

An employer bears a special responsibility to account properly for the company’s payroll. A primary object of that responsibility is the government’s (federal, state, and local) “connection” to taxes levied on each employee’s income, as well as other taxes levied on the employer’s payroll.

Connor Lang was discussing summer employment with Jarrod McIntyre, president of Azalea Landscaping Service:
Jarrod: I'm glad that you're thinking about joining us for the summer. We could certainly use the help.Connor: Sounds good. I enjoy outdoor work, and I could use the money to help with next year's school expenses.Jarrod: I've got a plan that can help you out on that. As you know, I'll pay you $12 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 face, I do some jobs for my clients on a strictly cash basis, so it would be easy to just pay you that way.Connor: Well, that's a bit unusual, but I guess money is money.Jarrod: Yeah, not only that, it's tax-free!Connor: What do you mean?Jarrod: 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.
Why does Jarrod McIntyre want to conduct business transactions using cash (not check or credit card)?
How should Connor respond to Jarrod's suggestion?

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response: Jill Stidd 19 Sep 08 12:01 PM MST

Per out text and the IRS website, it states clearly that an employer is responsible for submitting FICA taxes, social security taxes, workers comp that have been calculated and withheld from the employee’s gross pay. The other segment of payroll taxes is state taxes which are explained here on the Employment Development Department (EDD) website, “California has four State payroll taxes which are administered by the Employment Development Department (EDD). They are Unemployment Insurance (UI) and Employment Training Tax (ETT), which are employer contributions, and State Disability Insurance (SDI) and Personal Income Tax (PIT), which are withheld from employees' wages.Wages are generally subject to all four payroll taxes. However, some types of employment are not subject to payroll taxes and/or PIT withholding. For more information, please refer to the California Employer's Guide (DE 44).” (http://wwwedd.cahwnet.gov/Payroll_Taxes/What_Are_State_Payroll_Taxes.htm)

The employer is required to meet the amount of FICA taxes that the employee pays. This can be a very large cost to the employer and must be budgeted into operating costs of the business. The penalties and interest are quite large for late FDT payments. This is all very expensive and time consuming for an employer and that is the reason that Jarrod is suggesting this arrangement. By using Cash for payment, there is no paper trail or accounting of the payment there for a way he thinks he can hide the payment to Conner. However what he is not telling Conner is that Conner will still be responsible for his portion of FICA coming out of his paycheck at the end of the year if this company should ever be audited by the Employment Development Department in the state of California and caught for these actions. Which could result in a much lower tax return for Conner than he expected. Connor could learn the very hard lesson that he should have said no to Jerrod.Here is some good advice from the IRS, “How Can I Avoid Receiving FTD Penalties? You will be subject to a FTD penalty. The penalty rate increases according to the number of days the tax liability remains unpaid.If you make a deposit; late (after the deposit due date), or; of an incorrect amount (less than 100% or theapplicable safe harbor amount), or; in an incorrect manner (to an unauthorizedfinancial institution, directly to the IRS, or notthrough an electronic funds transfer, if required.”

(http://www.irs.gov/pub/irs-pdf/p1932.pdf)Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.http://wwwedd.cahwnet.gov/Payroll_Taxes/Reporting_Requirements.htm retrieved September 19,2008.http://wwwedd.cahwnet.gov/Payroll_Taxes/What_Are_State_Payroll_Taxes.htm retrieved September 19,2008.

Web research: Corporations

Go to the website of About.com and find information about patents and copyrights at http://www.usgovinfo.about.com/blpatents.htm. Read Part 1 on the first page, which contains general information about patents, and then click on one or more of the links to information about applying for a patent. Go back to the first page, click on Part 2, and read about copyrights. Click on one or more of the links about registering a copyright.
Discussion Question
Please respond to this Discussion Question using the information from the Web Field Trip above. Take time to review the responses of your classmates and provide your feedback.
In your Web Field Trip, you were asked to research the procedures for applying for a patent and registering a copyright. What are those procedures? Are these procedures available to anyone who wants to apply for a patent or register a copyright, or are there limitations?

My Response: Jill Stidd 12 Sep 08 12:14 PM MST

Patent: who can apply?“According to the law, only the inventor may apply for a patent, with certain exceptions. If a person who is not the inventor should apply for a patent, the patent, if it were obtained, would be invalid. The person applying in such a case who falsely states that he/she is the inventor would also be subject to criminal penalties. If the inventor is dead, the application may be made by legal representatives, that is, the administrator or executor of the estate. If the inventor is insane, the application for patent may be made by a guardian. If an inventor refuses to apply for a patent or cannot be found, a joint inventor or a person having a proprietary interest in the invention may apply on behalf of the non-signing inventor. If two or more persons make an invention jointly, they apply for a patent as joint inventors. A person who makes a financial contribution is not a joint inventor and cannot be joined in the application as an inventor. It is possible to correct an innocent mistake in erroneously omitting an inventor or in erroneously naming a person as an inventor.”

http://usgovinfo.about.com/gi/dynamic/offsite.htm?site=http://www.uspto.gov/web/offices/pac/doc/general/apply.htm)

Patent: who can not apply?“Officers and employees of the Patent and Trademark Office are prohibited by law from applying for a patent or acquiring, directly or indirectly, except by inheritance or bequest, any patent or any right or interest in any patent.” (http://usgovinfo.about.com/gi/dynamic/offsite.htm?site=http://www.uspto.gov/web/offices/pac/doc/general/apply.htm)Patent:

how to apply?They recommend using the electronic filing system due to its ease. All you do is turn what you are tryping to patent into a PDF and send it through there secure system along with the application and fees. “Use EFS-Web, the USPTO's electronic filing system for patent applications.” (http://usgovinfo.about.com/gi/dynamic/offsite.htm?site=http://www.uspto.gov/main/patents.htm)Patent: feesAlternative fee amount (non-small entity) basic filing fee 850.00 and for Alternative fee amount (small entity) basic filing fee 425.00 ( http://usgovinfo.about.com/gi/dynamic/offsite.htm?site=http://www.uspto.gov/go/fees/index.html p 2)

Patent financial data:Fiscal year 2007 small entity payments $41,519 and for non small entity $ 209,577 quite a bit of revenue here for patent applications. (http://usgovinfo.about.com/gi/dynamic/offsite.htm?site=http://www.uspto.gov/go/fees/index.html. p4,5)

Copyrights: who may apply?Persons or organizations creating "original works of authorship" including literary, dramatic, musical, architectural, cartographic, choreographic, pantomimic, pictorial, graphic, sculptural, and audiovisual displays usually register copyrights. Authors, artists, song writers and creators of computer programs typically register copyrights.Several categories of material are generally not eligible for federal copyright protection.


These include among others:• Works that have not been fixed in a tangible form of expression (for example, choreographic works that have not been notated or recorded, or improvisational speeches or performances that have not been written or recorded)• Titles, names, short phrases, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering, or coloring; mere listings of ingredients or contents• Ideas, procedures, methods, systems, processes, concepts, principles, discoveries, or devices, as distinguished from a description, explanation, or illustration•

Works consisting entirely of information that is common property and containing no original authorship (for example: standard calendars, height and weight charts, tape measures and rulers, and lists or tables taken from public documents or other common sources)http://usgovinfo.about.com/blcopyrights.htm

There is no need to "apply" for a copyright. A copyright is automatically considered to be granted to the author or creator of the work as soon as it is finished and considered "fixed" in a copy or recording. [Details from the US Copyright Office] While there is no need to apply for copyrights, there are definite advantages to registering them through the Copyright Office. Primarily, registering a copyright establishes a legally enforceable public record of the creator's copyright claim.Things that cannot be copyrighted include any inventions, ideas, procedures, processes, slogans, principles, or discoveries. (http://usgovinfo.about.com/blcopyrights.htm)

Copyright: who may not apply?In the case of works made for hire, the employer and not the employee is considered to be the author. Section 101 of the copyright law defines a “work made for hire” as:1. work prepared by an employee within the scope of his or her employment; or2. work specially ordered or commissioned for use as; a contribution to a collective work; a part of a motion picture or other audiovisual work&; a translation &; a supplementary work; a compilation; an instructional text; a test; answer material for a test an atlas.(http://usgovinfo.about.com/blcopyrights.htm)

Copyright: how to registerTo register a work, send the following three elements in the same envelope or package to:Library of CongressCopyright Office101 Independence Avenue, SEWashington, DC 20559-60001. A properly completed application form.2. A nonrefundable filing fee* for each application.3. A nonreturnable deposit of the work being registered. The deposit requirements vary in particular situations. The general requirements follow. Also note the information under “Special Deposit Requirements.”
(http://usgovinfo.about.com/blcopyrights.htm)

I have written a children’s book that I have wanted to copyright for some time now. I had researched into this a while back and found out that one way to secure copyright of my book was to make a copy, seal it, and send it to myself, and never break the seal. I did that. I now may make the next step and register it now that I have all the information I need to do so. I want to publish it as well; I am looking right now for someone to illustrate it.http://usgovinfo.about.com/blpatents.htmhttp://usgovinfo.about.com/blcopyrights.htmDate Modified: 12 Sep 08 12:20 PM MST

Ethics discussion: Internal controls

Leah Corbin, CPA, is an assistant to the controller of Beartooth Consulting Co. In her spare time, Leah also prepares tax returns and performs general accounting services for clients. Frequently, Leah performs these services after her normal working hours, using Beartooth Consulting Co.’s computers and laser printers. Occasionally, Leah’s clients will call her at the office during regular working hours.

Discuss whether Leah is performing in a professional manner.

My Response: 12 Sep 08 11:10 AM MST

Initial Post: Jill Stidd

I feel that this is not a professional attitude as a CPA. I think that there are two points to consider here that are important for this discussion. First, our text defines capital and revenue expenditures, “once a fixed asset has been acquired and placed in service, expenditures may be incurred for ordinary maintenance and repairs. In addition, expenditures may be incurred for improving an asset or for extraordinary repairs that extend the assets useful life. Expenditures that benefit only the current period are called revenue expenditures. Expenditures that improve the asset or extend its useful life are called capital expenditures.” (Warren, Reeve, and Duchac. P. 9,10)

The discussion says that Leah frequently uses the computer and printer to work on private clients after hours. It does not say if she has permission to do this, if so then that is a different story all together. If she does not have permission then she is adding to the wear and tear of the equipment that could add to accumulated depreciation and affect the assets on the balance sheet for the company she works for. If she creates a situation that the printer goes through more ink (which by the way is very expensive, or needs a minor repair then that would affect expenses which would effect the income statement and net income for the company.Second idea to look at, should not Leah as a CPA create her own company that purchases her own equipment so that she can garner the tax benefits that the company she is working for gets with deprecation and expenses?

Not only is she not very ethical and professional here, she is not a very smart CPA if she is letting the company she works for get all the tax benefit that she could acquire if she created her own business.As far as the phone calls go at work, in most places of business the policy is stated in the handbook that there should be no personal phone calls, so again this is highly unprofessional.Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.

Ethics discussion: Bank Interest computation

Neka Kiser, vice president of operations for Mountain National Bank, has instructed the bank’s computer programmer to use a 365-day year to compute interest on depository accounts (payables). Neka also instructed the programmer to use a 360-day year to compute interest on loans (receivables).

Discuss whether Neka is behaving in a professional manner.

My Response: 5 Sep 08 10:09 AM MST

I wanted to provide a definition of a deposit account. I went to the web in search of this definition, “A deposit account is a current account at a banking institution that allows money to be deposited and withdrawn by the account holder, with the transactions and resulting balance being recorded on the bank's books. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited.

(http://en.wikipedia.org/wiki/Deposit_account, reveiwed, September 4, 2008)

To increase the days that the intrest is compute for the deposit account would increase the interest that the bank could collect from the consumer. This is not ethical and if customers looked at their bank statement and could analize this amount that must be disclosed then there would be complaints. This complaint would also be sent to the regulations that oversee the banking industry. The order that Neka gave the programer to compute the loans (receivables) for a 360 day year sends a clear message that Neka was aware of the correct thing to do and chose not to for the payables. Neka is acting in a very unprofessional manner and is asking someone else to create something in terms of computer programming that is unethical as well.The computations of the receivables is in order for computing at 360 days per our text. “ The interest rate on notes is normally stated in terms of a year, reagardlessof the actual period involved.”

(Warren, Reeve, and Duchac,. 2007)

http://en.wikipedia.org/wiki/Deposit_account reveiwed, September 4, 2008)Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.

Ethics discussion: Internal controls, Sarbanes-Oxley Act

Please respond to this discussion question using the information from this lesson.
The prompt for this week’s Ethics Lesson Discussion comes from the Special Activity SA 8-4 on page 389 of your text.

Pete Harsh and Sara Alper are both cash register clerks for Farmers' Markets. Gina Majed is the store manager for Farmers' Markets. The following is an excerpt of a conversation between Pete and Sara:

Pete: Sara, how long have you been working for Farmers' Markets?Sara: Almost five years this July. You just started two weeks ago ... right?Pete: Yes. Do you mind if I ask you a question? Sara: No, go ahead.Pete: What I want to know is, have they always had this rule that if your cash register is short at the end of the day, you have to make up the shortage out of your own pocket?Sara: Yes, as long as I've been working here.Pete: Well, it's the pits. Last week I had to pay in almost $50.Sara: It's not that big a deal. I just make sure that I'm not short at the end of the day.Pete: How do you do that?Sara: I just short-change a few customers early in the day. There are a few jerks that deserve it anyway. Most of the time, their attention is elsewhere and they don't think to check their change.Pete: What happens if you're over at the end of the day?Sara: Majed lets me keep it as long as it doesn't get to be too large. I've not been short in over a year. I usually clear about $50 to $80 extra per day.

Discuss this case from the viewpoint of proper controls and professional behavior.

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My response: 28 Aug 08 2:07 PM MST


Farmers Markets as a company or business needs to review all its business practices whether they are a small business with one location or many locations. If these sorts of actions are going on by the employee’s as well as the managers then the company does not have internal control procedures in place and functioning. As stated in our text, the objectives of internal control are to provide reasonable assurance that (1) assets are safeguarded and used for business purposes, (2) business information is accurate, and (3) employees comply with laws and regulations. (Warren, Reeve, and Duchac. P. 350) As also emphasized in our text that a business’s control environment is in the attitude of the management and the employees understanding about the importance of internal control procedures.

This management was not upholding this importance to the employee by allowing the employee to “keep” the overage that the employee had at the end of the day. This is sending the message to the employee we allow fraud in this company “have at it!” The Human recourses department obviously did not translate the company personnel policies effectively. The management did not have a proper training with the employee, and the company is obviously not having “surprise” visits to ensure compliance.

One area this business needs to really address would be in the internal control procedures and that is hiring competent personnel that have the proper management training for the position. For proper control of cash receipts it is important that the manager and the employee count the ending shift cash drawer, it must balance with the opening shift cash drawer plus shift sales. It is not stated in this discussion if this process happens it just states that the manager encourages the employee to take what ever is “over.”

The accounting department should also see a red flag when there are only “cash short” and never any cash “over.” Seems there might be many area’s for fraud within this company in various departments! This would absolutely be for personal gain and it in fact fraud and theft and should be disciplined by what ever agencies would be involved.Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.