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CFO tests company's revenue recognition practices against the recently issued SAB 101 requirements and proposes plan for adoption of SAB 101.

A series of caselets exploring the accounting for long-lived nonmonetary assets.

A series of caselets exploring the accounting for liabilities.

As the recession lingered on into 2009, the U.S. government sought to limit executive pay and excessive risk. The debate raged over what constituted excessive risk and how best to mitigate it. This case describes the government restrictions on executive pay for TARP recipients and delves into the debate on executive compensation and incentives that encourage excessive risk.

This case motivates a debate on the role of staff functions, such as risk management: what does it mean for them to be independent, and at the same time, to partner the business lines? The case describes the risk assessment process in the corporate banking arm of Wellfleet Bank (cca. 2006-2009) around an illustrative business proposal in the corporate lending business, and illustrates the decision challenges faced by the case protagonists (two senior risk officers of the Group Credit Committee)-who grapple with the tensions common between the sales organization and the risk control function in large financial institutions. The discussion of the proposal particularly evokes the cultural tension between the risk function and the business line: should the risk function play the role of policeman or business partner?

A small manufacturer of gas grills is making final changes to its 2009 operating budget and considering several changes in pricing, advertising, and product availability. This short case addresses the topic of contribution analysis as an easy way to analyze profit planning issues such as adding or dropping a product or service; changing a price; adding or decreasing expected volumes; or preparing a profit budget. In this situation there are three products, each with different proportions of variable and fixed costs. The product with the highest profit/unit on a full cost basis has the lowest contribution/unit on a variable cost basis, and vice versa. Four different marketing plans are proposed before one is finally adopted as the plan for the year. At year end, the actual results can be compared to the budget and to a flex or adjusted budget based on the actual product volumes realized. The numbers are simple and the students can readily see the benefit of variable costing.

This case explores maximizing shareholder value as a goal in executive decision making. Over a period of nine years, three different Pfizer CEOs make critical decisions intended to increase shareholder value. But the results are disappointing. To allow students to examine these decisions, the case provides excerpts from four Chairman's letters to shareholders from Pfizer's annual reports, followed by a description of the circumstances behind each letter. In the 2000 annual report, then-CEO Bill Steere discusses Pfizer's rise to industry prominence with the acquisition of Warner-Lambert. In the 2003 report, new CEO Hank McKinnell discusses Pfizer's performance goals and its acquisition of Pharmacia, which gave it control of anti-arthritis drug Celebrex. In the 2005 report, McKinnell discusses his decision to keep Celebrex on the market despite health risks. In the 2006 report, new CEO Jeff Kindler barely mentions McKinnell's (controversial) early retirement and describes efforts to reform the company. The case closes in February 2009, just after Pfizer announces plans to acquire competitor Wyeth. Since 2000, Pfizer's tremendous growth in assets through acquisitions has not translated into significant growth in net income or share price. In closing, students are asked what Kindler should write in the letter to shareholders to open Pfizer's 2008 annual report.

Credit Valley Golf and Country Club (Credit Valley), a private golf course, would be having their annual general meeting very soon. The general manager of Credit Valley and the superintendent felt that the most pressing issue was a change to the method of irrigation being used by the golf course. This change was made necessary by newly passed government regulations. The general manager and superintendent had to prepare a proposal for the annual general meeting to convince the board of directors and the club members that a new pump house was the most viable option.

The chief financial officer (CFO) of North Billington Golf and Country Club was reviewing the financial statements prepared by the auditors. At the upcoming annual general meeting, Parkinson was expected to address the membership on the future financial health of the golf club. In addition to having the financial statements ready, he wanted to compare the financial results with those of other golf courses.

Biovail was a large international pharmaceutical company with reported revenues of $788 million. Banc of America has issued a research report which indicates that Biovail Corporation's financial statements raised a number of issues that warrant caution for investors, and as a result, Biovail's stock was given a sell rating by Banc of America. A member of Biovail's audit committee is preparing for an upcoming audit meeting and considers the implications of this report for the company and for the audit committee.

The founder and sole shareholder of a financial planning company must decide whether to hire a new advisor or purchase a block of business from another financial planner. Students are asked to perform an industry analysis, a corporate size-up and consumer analysis. Students are also required to complete a statement of cash flows, a financial ratio analysis and a differential analysis. Students must design a marketing plan and prepare projected financial statements.

After 15 years of great performance, Target's faltering performance during an economic downturn led an activist shareholder to initiate a proxy fight. Target Corporation, the second-largest discount store retailer in the U.S., had competed successfully against industry leader Walmart for years by promoting an upscale discount shopping experience in comparison to Walmart's focus on low prices. This strategy worked well for Target in good economic times. The economic crisis of 2008-2009, however, caused shoppers to abandon Target in favor of Walmart. In the spring of 2009, one of Target's largest shareholders initiated a proxy fight to place his five director nominees on the board. Target won the proxy fight, but still faced questions about whether it had a strategy that could work in both good times and bad.

Spreadsheet Supplement for case 109010

Breeden Electronics USA is a start-up division of a German company. It plans to produce two products, both electronic signaling devices. Herman Klein, the division president, has asked his controller, Marlene Baer, to compute several break-even sales figures as they assess the sales level that is necessary to meet the profit target established by the parent company. Baer must conduct several break-even analyses and consider the impact on profit if production exceeds sales. This is the first in a series of two cases that can be used to explore the evolution of cost systems. The main issues of the two cases are as follows: in the A case, the company uses a traditional costing system. The main questions relate to breakeven analysis and the effect of inventory buildup on profit. The B case (UV1779) introduces the use of an activity-based costing system to allocate costs so that the company can assess both product and customer profitability. The two cases can be used in two classes or together in one class.

Marlene Baer, the controller of Breeden Security USA, recognizes that grouping all manufacturing overhead costs together and allocating them to Breeden's two products is not very accurate. She groups overhead costs by activity and then allocates them to the two products. The system resembles a simple activity-based costing system. It introduces the definition of activities, costing those activities, and computing product cost based on their use of the activities. The revised product costs are considerably different, and analyzing what causes the differences is important for discovering where ABC can provide valuable information. In addition, at the end of the year, profits have been reduced by the need to take care of a growing and increasingly complex packing and shipping activity. Baer defines a new activity (order handling), computes the cost per order, and begins to revise the data on product profitability and to develop data on customer profitability. Having discovered the high cost of handling each order, she now has good reason to work on activity-based management and the notion of customer profitability making that process more efficient, and perhaps more customer friendly. This is the second in a series of two cases that can be used to explore the evolution of cost systems. The main issues of the two cases are as follows: In the A case (UV1778), the company uses a traditional costing system. The main questions relate to breakeven analysis and the effect of inventory buildup on profit. The B case introduces the use of an activity-based costing system to allocate costs so that the company can assess both product and customer profitability. The two cases can be used in two classes or together in one class.

After one year of operations, the new manager of a tennis pro shop and bar lounge must prepare, with the help of the company's accountant, financial statements from notes kept throughout the year. The case is intended to be an introductory exercise in accounting for simple transactions relating to assets, liabilities, revenues and expenses. Adjusting entries such as amortization and cost of goods sold are required. Students are asked to complete the accounting cycle by preparing closing entries and an income statement and balance sheet.

In estimating depreciation for accounting purposes, Delta Air Lines has changed its assumptions about aircraft lifespan and residual values four times in the last thirty years or so. In the most recent changes, Delta adopted fair value accounting as part of its "fresh start" emergence from bankruptcy. Each of these policy changes has affected future asset values as well as present and future income. Students should organize their case analysis around three types of questions: (1) the estimated life cycle of commercial passenger airplanes; (2) the uses of financial reports, including the purpose of depreciation in reporting on assets and periodic income; and (3) alternative procedures for reporting asset book values and income that might better serve users of financial reports.

Nippon Steel Corporation, the largest Japanese steel producer and second largest in the world faces challenges in pursuing strategy to become a true global player. Nippon Steel had long been the top Japanese company, however the emergence of a global player, Arcelor-Mittal, prompted globalization of the steel industry. The company feels the urgent need to also globalize the company by not just increasing overseas production but also making necessary changes to the company structure.

Gucci Group's CEO had to decide if his decentralized management style was the most effective philosophy in an economic downturn. The sharing of customer information across units and its use in the creative process are key initiatives analyzed in the case. CEO Robert Polet joined the high-end fashion Gucci Group in 2004, after 26 years at one of the largest consumer goods companies. Since his arrival, the Group had grown both in revenues and profitability. Part of his secret was his decentralized and empowering management style. In 2008, in the midst of the economic downturn following the credit crunch crisis, Polet learned that after four years of growth the Gucci brand-the Group's largest business-would report a slowdown for the year's first semester. He knew that according to his management philosophy he should leave the primary decisions for the Gucci brand to Gucci's CEO. Yet, given the urgency of the situation, Polet wondered if it would be more effective to become directly involved in the brand's decision-making process. To anchor the discussion on Polet's management style, the case discusses how customer information is used in the creative process and whether it would be beneficial for the group to share customer information across stores, regions, and brands.

Virginia Mason Medical Center (VM) hired Owens & Minor (O&M) as its alpha vendor for medical/surgical supplies in 2004. By 2005, O&M was performing JIT and LUM services for VM, but they believed the pricing model in the industry was outdated. VM and O&M partnered to create the Total Supply Chain Cost (TSCC) pricing program, an activity-based model that assigned all the cost drivers of distribution and inventory handling to VM, but also assured O&M of a profit. The TSCC incented VM to streamline its distribution activities, since these would directly impact its fee. After beta testing the TSCC for one year, VM's Daniel Borunda and O&M's Michael Stefanic believed that TSCC was a better and more cost-effective pricing model, but could they convince their companies to continue to invest in TSCC?