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This case provides for a discussion about how retail banks provision for loan losses, and how to analyze the riskiness of loan portfolios and the adequacy of the allowance for loan losses. What is unique about the setting is that a smaller regional bank made a large loan based on an unsubstantiated appraisal. Students can observe how the loan moves to nonperforming status in one quarter, then is directly written off in the subsequent quarter without affecting the allowance for loan losses.

Student spreadsheet for case UV7563.

In early 2014, Paul Bills, CFO of Harvard Business Publishing (HBP), sat down with David Wan, the company's CEO, to discuss budget preparations for the coming year. Bills noted that the performance of Corporate Learning, one of HBP's three business units, would be affected by a business model change for its largest product that required a change in the timing of revenue recognition. Corporate Learning was in the process of revamping its flagship product, Harvard Manage-Mentor (HMM) from version 11.0 (HMM11) to version 12.0 (HMM12). The revamped software would be hosted exclusively on HBP's server rather than on its clients' servers, allowing updates to take place continuously. Given the change, accounting standards required HBP to change the recognition of revenue from the date of software delivery (for HMM11) to ratable recognition over its contract life (for HMM12). As Bills and Wan discussed the accounting change, they recognized that its impact on Corporate Learning's and HBP's performance could be material and would have to be reflected in the budget. In addition, they wondered how the new accounting would affect the company's policy for awarding sales incentive compensation on HMM, as well as how they communicated with employees and the firm's sole shareholder, the Harvard Business School.

Lord Hobo Brewing Company accounts for its inventory process at it prepares to create its first set of professional financial statements for investors.

Destron Petroleum Services (DPS) was an oil drilling contractor that had just won a bid to provide a land drilling rig on a rental basis to a major oil producing company in Pakistan. The case outlines how the company projected all of its costs related to the project and finally quoted a price for the project to the client.

This reading provides a complete overview of assets, the variety of resources owned or controlled by a business entity. Assets are an element of the accounting equation Assets = Liabilities + Equity and are reported on a company's Balance Sheet.

This is a standalone reading designed to enhance students' understanding of liabilities and their measurement, presentation, and impact on a company's financial statements. The reading provides the formal definition of a liability and the conditions required to measure, classify, and record a liability on the balance sheet.

A Canadian couple whose daughter owned Metta Rest Spa, a flotation spa that opened in September 2014 in Vancouver, British Columbia, had invested almost CA$1.2 million in the business. Their daughter had recently asked for another $60,000 to keep the business afloat, and in early 2016 the couple needed to decide whether to invest more money in the business. The business had a net loss in 2015 and needed cash to continue to operate. What other information should they be asking for? They needed to know if the business would be able to sustain itself without requiring their retirement funds.

A Canadian couple whose daughter owned Metta Rest Spa, a flotation spa that opened in September 2014 in Vancouver, British Columbia, had invested almost CA$1.2 million in the business. Their daughter had recently asked for another $60,000 to keep the business afloat, and in early 2016 the couple needed to decide whether to invest more money in the business. The business had a net loss in 2015 and needed cash to continue to operate. What other information should they be asking for? They needed to know if the business would be able to sustain itself without requiring their retirement funds.

This case provides students with an opportunity to decide how to respond to an SEC inquiry and how to communicate adverse news. It does so in the context of accounting for separately priced extended warranties. LCA-Vision (LCA), a leading provider of LASIK vision-correction services, accounted for separately priced extended warranties incorrectly. Under US generally accepted accounting principles (GAAP), LCA was required to defer revenues associated with extended warranties. Instead, LCA recognized 93% of these revenues immediately, and deferred the 7% in accordance with the proportion of customers needing follow-up treatment. During the routine review process, the SEC posted a comment letter questioning this accounting treatment, which subsequently led to a restatement and shareholder litigation. Therefore, the case is an opportunity to examine how managers interact with regulatory bodies, communicate with investors, account for separately priced extended warranties, and correct erroneous filings via issuing a restatement. It is suitable for an audience of accounting students, or as an elective for general business students who have some exposure to accounting.

In 2018, the vice-president of operations at Fleetway set out to make some decisions regarding the company's future strategy. Fleetway, a family entertainment centre in London, Ontario, was a popular destination for family fun. With a new entrant in the region and a few expansion opportunities to choose from, the vice-president had to decide whether adding go-karting or an escape room presented the best opportunity for future success. Doing both was feasible too, but should Fleetway become a premium service offering or remain in its current space? The expansion could better position the company for future success because most family entertainment centres had slowly moved toward a premium service mix, as represented by a new local competitor. Should Fleetway move toward a premium service offering or remain operating in its current space?

The Fire Roasted Coffee Company (Fire Roasted) was a small regional roaster and seller of coffee in London, Ontario. The company sourced green coffee beans from over 20 different countries and managed the roasting process in house. Its coffee was primarily served at Fire Roasted’s own coffee shop locations, but was sometimes sold wholesale to other cafés and interested parties. In 2017, as the company was about to update its point-of-sale system, the company’s founder and president recognized the opportunity to implement a new set of prices for the premium coffee beverages on the menu. The list of beverages included Americano, cappuccino, drip coffee, latte, macchiato, and mocha. He considered a few different methods of costing selected items, intending to use these costs as an aid to his pricing decisions. He was also determined to incorporate industry and competitive dynamics into the decision.

This exercise teaches students to account for defined benefit pension plans using a simplified example of Caperton Corporation's defined benefit plan. The simplification treats all employees as one homogeneous group (same age, retirement date, and terminal date), which allows students to calculate present values and focus on the accounting for the future cash flows. Included is a concise spreadsheet answer guide, which illustrates the present-value calculations and how they map into plan assets, plan obligation, pension expense, and other accumulated comprehensive income.

Spreadsheet Supplement for Exercise UV8889

In May 2017, the owner and operator of Master Decker, a deck restoration business, had an opportunity to expand his business by adding to the company's current service offerings. His three expansion alternatives were offering deck building, marketing an exclusive line of stains, and manufacturing deck cleaning chemicals. He planned to analyze the costs and benefits of each alternative. He wanted to continue growing the business but wondered which of these options, or combination of options, would provide the best return on investment for his company. Because he had no set timeline, he wanted to move forward with at least one of the options immediately.

The Fire Roasted Coffee Company (Fire Roasted) was a small regional roaster and seller of coffee in London, Ontario. The company sourced green coffee beans from over 20 different countries and managed the roasting process in house. Its coffee was primarily served at Fire Roasted's own coffee shop locations, but was sometimes sold wholesale to other cafés and interested parties. In 2017, as the company was about to update its point-of-sale system, the company's founder and president recognized the opportunity to implement a new set of prices for the premium coffee beverages on the menu. The list of beverages included Americano, cappuccino, drip coffee, latte, macchiato, and mocha. He considered a few different methods of costing selected items, intending to use these costs as an aid to his pricing decisions. He was also determined to incorporate industry and competitive dynamics into the decision.