When WorldCom Inc.’s former chief executive Bernard Ebbers was found guilty of participating

In one of the largest U.S. accounting frauds ever, the ruling sent a message to corporate

Executives: Professing ignorance won’t necessarily save you.

Mr. Ebbers, who died Feb. 2 at age 78, was a former gym teacher who rose to head a

Telecommunications Company with a peak market value of about $180 billion. In the late 1990s

And early 2000s, WorldCom improperly boosted profit by booking operating expenses as capital

Spending, which can be deducted from earnings in small chunks over time.

During a trial in 2005, he pleaded not guilty to accounting fraud and said he didn’t know about

The misdeeds. The jury didn’t buy it. His 25-year prison sentence “put an exclamation point behind the old phrase ‘the buck stops here,’ ” said Patrick McGurn, special counsel at proxy advisor Institutional Shareholder Services. The dot-com bust and accounting scandals at WorldCom and Enron Corp. helped spur Congress to enact the Sarbanes-Oxley Act of 2002, whose provisions include requiring a public company’s chief executive and chief financial officer to certify that financial statements are accurate. The scandals also hastened a trend toward more independent corporate directors willing to challenge CEOs. Charles Elson, who heads a corporate-governance center at the University of Delaware, has this epitaph for the WorldCom fiasco: “As bad as it was, some good came out of it.” The regulatory changes didn’t mean corporate scandals would automatically land CEOs in prison. The aftermath of the 2008 financial crisis was notable for a lack of CEO scalps. Corporate leaders, wary of prison, may have become more cautious and less likely to leave paper or email trails, said Peter Henning, a law professor at Wayne State University, in Detroit. Mr. Ebbers, who built WorldCom through dozens of takeovers, was released from prison 13 years into his sentence in December because of deteriorating health. He followed an unconventional route to the CEO suite. The second of five children, Bernard John Ebbers was born Aug. 27, 1941, in Edmonton, Alberta, in Canada. His father worked as a traveling salesman and mechanic. The family moved to California in the late 1940s. Mr. Ebbers attended a boarding school on a Navajo reservation in New Mexico. As a young man he held odd jobs as a milk delivery man and a nightclub bouncer. Twice he gave up on college because of poor grades. He graduated from Mississippi College, where he played basketball, with a degree in education in 1967. Early in his career, Mr. Ebbers taught physical education and worked in a garment factory. He later began buying motels, starting with one in Columbia, Miss., where he lived in a two bedroom trailer in the parking lot. When AT&T’s “Ma Bell” system was broken up in the early 1980s, small rivals began reselling long-distance service. Mr. Ebbers and a handful of investors backed a company called Long Distance Discount Service, later renamed WorldCom. Dubbed the “Telecom Cowboy,” he earned a reputation as a hard-driving boss. He began to borrow money from the company in the late 1990s and used some of it to buy company stock. As the company expanded, Mr. Ebbers said he relied heavily on experts. “I’m not an engineer by training; I’m not an accountant by training,” he told the New York Times in 1998. “I’m the coach. I’m not the point guard who shoots the ball.” WorldCom began to show signs of stress in 2000 as its share price sank amid the dot-com meltdown. Mr. Ebbers was fired as CEO in April 2002. Soon afterward, an internal auditor spotted accounting irregularities. After his ouster, Mr. Ebbers appeared at his Mississippi church. At the end of the service, he walked to the front of the church and spoke to the congregation: “I just want you to know you aren’t going to church with a crook.” WorldCom’s former chief financial officer, Scott Sullivan, who engineered the fraud and worked closely with Mr. Ebbers, was sentenced to five years in prison after cooperating with prosecutors. He testified that Mr. Ebbers knew of the accounting methods used. Mr. Ebbers insisted he was blind-sided by the fraud. “I know what I don’t know,” he testified in a federal court. “I don’t, to this day, know technology. I don’t know finance and accounting.” As a judge delivered the sentence in 2005, Mr. Ebbers hung his head and cried while hugging his wife, Kristie Ebbers, who filed for divorce in 2008. He drove himself to prison in a Mercedes the following year and spent part of his sentence as inmate No. 56022-054 in a low-security prison in Louisiana. He was later transferred to FMC Fort Worth, a federal prison hospital in Texas. Paul Watson, a Mississippi resident and former WorldCom investor, lost $135,000 when the company collapsed, and supports a relative who lost $2.2 million. Still, he said, he feels little anger toward Mr. Ebbers and thinks “others have done far worse and been punished less.”

1. Why do you think, Charles Elson, from University of Delaware, said: “As bad as it was, some good came out of it.”?
2. Do you believe Mr. Ebbers was at fault of what happened with Worldcom despite he claimed in court that”…. I don’t know finance and accounting.” Why?
3. Why was Bernie Ebbers called the Telecom Cowboy?
4. Did the agency problem take a role in the Worldcom fiasco? Explain why yes or no? (note: there is not a clear answer here, so whatever you answer will be ok as long as you can explain it)

The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $111,000 (average cost basis) and were $115,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $137,000 at December 31, 2020, and $142,000 at December 31, 2019, if determined on a FIFO basis. A tax rate of 25% is in effect for all years.

One hundred thousand common shares were outstanding each year. Income from continuing operations was $310,000 in 2020 and $435,000 in 2021. There were no discontinued operations either year.

Required:
1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2021–2020 comparative income statements beginning with income from continuing operations (adjusted for any revisions). Include per share amounts.

examine Microsoft's statement of cash flows. Assume you work for this company and the CEO approached you and asked for advice on how to improve the cash position of the company. Provide at least two recommendations you would offer and discuss how these could directly impact cash flow.

                                                                       June 30, 2019,                               June 30, 2018

Changes in operating assets and liabilities         3,866                                                        20,467

Adjustments to reconcile net income to             12,945 27,313

net cash from operations

Net cash from operations                                     52,185    43,884

Net cash from (used in) financing (36,887)                                                        (33,590)

Net cash used in investing    (15,773)                                                          (6,061)

Net change in cash and cash equivalents            (590)                                                              4,283

Cash and cash equivalents, end of period           11,356                                                              11,946

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $153,000. Ship's net assets on the date of acquisition were 700,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiary's identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ship's property, plant, and equipment exceeded its book value by $18,000. The remaining useful life of Ship's equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Ship's trial balance on December 31, 20X5, in kroner, follows:

Additional Information:

Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr430,000 were made evenly throughout 20X5.

Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.

Ship’s sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.

The dividends were declared and paid on July 1, 20X5.

Pirate's income from its own operations was $247,000 for 20X5, and its total stockholders' equity on January 1, 20X5, was $3,500,000. Pirate declared $180,000 of dividends during 20X5.

Exchange rates were as follows:

Assume the U.S. dollar is the functional currency, not the krone.

Required:
a. Prepare a schedule remeasuring the trial balance from Norwegian kroner into U.S. dollars. (If no adjustment is needed, select 'no entry necessary'.)

b. Assume that Pirate uses the fully adjusted equity method. Record all journal entries that relate to its investment in the Norwegian subsidiary during 20X5. Provide the necessary documentation and support for the amounts in the journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the purchase of ship inc.

2. record the dividend received from the foreign subsidiary

3. record the equity in the net income of the foreign subsidiary

4. record the amortization of the differential

c. Prepare a schedule that determines Pirate's consolidated net income for 20X5..(Amounts to be deducted should be indicated with a minus sign.)

d. Compute Pirate's total consolidated stockholders' equity at December 31, 20X5.

1. Your company wants to launch a new product. The price will be $108 and the projected units sold will be 5,000 each of the next five years and then zero sales after that (i.e. life of five years). Variable costs per unit is $47 and fixed costs will be $36,000 per year. This project will need initial net working capital of $37,000, and NWC will then increase $7,000 per year through the end of year five. At that point 75% of NWC (no tax ramifications) will be returned to the company. Necessary equipment investment will be $900,000 and have a salvage value of 23%, net of tax. The depreciation will be straight-line over the life of this project. Your company’s current debt/equity ratio is 1.15 and this product is in line with the operations of the rest of your company. Your company is in the 21% tax bracket. Your equity investors demand a 13% return and your company’s bonds yield 5.3%. Even though no debt will be used, you still need to use your company’s WACC. Price is accurate within 5%, units sold within 3%, and variable & fixed costs within 2%. What is the NPV in the worst-case scenario?

2.In 2020 and 2019, your cash was 4,563 and 3,597, your accounts receivables were 7,531 and 6,423, and your inventory was 10,235 and 11,563. Similiarly, in 2020 and 2019 your accounts payable was 8,423 and 5,789, and your other current liabilities were 7,413 and 10,356. Lastly from the balance sheet, in 2020 and 2019 your net fixed assets were 74,562 and 71,246.

In 2020 your net sales were 111,425, your costs of good sold was 38,999, rent was 48,543, and depreciation was 2,015. You paid interest of 1,728 and your tax rate was 20.36%.

What is cash flow from assets (i.e. free cash flow) in 2020?

Motor Corp. manufactures machine parts for boat engines. The CEO, James Hamilton, is considering an offer from a subcontractor who would provide 3,000 units of product AB100 for Hamilton at a price of $230,000. If Motor Corp. does not purchase these parts from the subcontractor it must produce them in-house with the following per-unit costs: Direct materials $ 40 Direct labor 25 Variable overhead 15 Allocated fixed overhead 4 In addition to the above costs, if the company produces part AB100, it would incur incremental fixed overhead costs of approximately $10,000. Required: a) What would be the impact on short-term operating income if the company were to accept the offer from the subcontractor? Show calculations to support your answer. b) What strategic factors/considerations are generally relevant to the special-order decision problem (i.e., whether a company should accept a one-time order from a customer with whom the company does not generally do business)? b

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Siren Company sells the fishing lures for $34.00. During 2020, the company sold 81,000 lures and produced 95,000 lures.

Assuming the company uses variable costing, calculate Siren’s manufacturing cost per unit for 2020. (Round answer to 2 decimal places, e.g. 10.50.)

1. Manufacturing cost per unit $
2. Prepare a variable costing income statement for 2020.

Exercise 6-17

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Siren Company sells the fishing lures for $26.00. During 2020, the company sold 80,000 lures and produced 94,000 lures.

Prepare a variable costing income statement for 2020.

Prepare an absorption costing income statement for 2020.

Shoes, not the most exciting product category, right? Try telling that to Tony Hsieh (pronounced Shay), CEO of Zappos.com. In less than a decade, Hsieh has built Zappos into a billion dollar business through delivering a vast selection of shoes, clothing, handbags and other products (over three million items available) and unsurpassed customer service. The company was acquired by Amazon in 2009 and operates as an independent entity. Mr. Hsieh is a self-professed scholar of “happiness” and, as part of his vision to create the world’s most customer-centric online company, aims to deliver “Happiness in a Box.” This three-part formula is to: 1) meet expectations by delivering the right items, 2) meet desires through free shipping, free return shipping when necessary and a 365 day return policy and 3) often delight customers via surprise upgrades to overnight shipping (four to five day shipping is standard).

The Zappos customer experience (obsession) is all about developing relationships, emotional connections and high-touch “WOW” customer service. The Zappos program for customer service is summarized below:
> Make customer service a priority for the whole company, not just a department
> Make WOW a verb part of your company’s everyday vocabulary
> Empower and trust your customer service reps
> Don’t measure call times, upsell or use scripts
> Don’t hide your 1-800 number
> View each call as an investment in building a brand
> Celebrate (company-wide) great service
> Find people passionate about customer service
> Give great service to everyone: customers, employees and vendors.

To Discuss: (Answer 2 of the 5 questions below and reply to 2 or more comments by classmates)

1. What prevents other companies from adopting customer service best practices (review the
nine guidelines)?
2. How can the Zappos philosophy of creating exceptional value be adopted by your company?