Movie Inc., an entertainment conglomerate, has a beta of 1.60. Part of the reason for the high beta is the debt left over from the leveraged buyout of Pic Inc. in 2009, which amounted to $10 billion in 2014. The market value of equity at Movie Inc in 2014 was also $ 10 billion (and the book value of equity was also $10 billion). The marginal tax rate was 40%.

1. Estimate the unlevered beta for Movie Inc.

2. Estimate the effect of reducing the debt ratio (Total Debt/Total Assets) by 10% each year for the year (for example if the debt ratio was 40% it will be reduced to 30%) on the beta of the stock. Assume that Movie Inc has no short-term debt (i.e. TD=TL).

The cash records and bank statement for the month of May for Diaz Entertainment are shown below.   
  

Desc.   DEP Customer deposit                  INT Interest earned             SF Service fees
            NOTE Note collected                   CHK Customer check           NSFNonsufficient funds
            EFT Electronic funds transfer

  
Additional information:

a. The difference in the beginning balances in the company’s records and the bank statement relates to checks #469 and #470, which are outstanding as of April 30, 2018 (prior month).
b. The bank made the EFT on May 20 in error. The bank accidentally charged Diaz for payment that should have been made on another account.

1. Prepare a bank reconciliation for Diaz's checking account on May 31, 2018. (Amounts to be deducted should be indicated with a minus sign. Total entries to the same account together when entering in the bank reconciliation.)

2. Record the necessary cash adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Total entries to the same account together when entering in the journal entry carousel.)
  

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Question:

1. Identify the problems that Ticketmaster was facing, using cause and effect analysis. What were the Symptomatic Effects? What were the Underlying Causes?

2. What process(es) did Nathan Hubbard use to Generate Alternatives? What alternatives were available to Mr. Hubbard? What types of Uncertainty did he experience?

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Questions

How did Mr. Hubbard select his most desirable alternative? Describe which type of Decision Making he used, and explain your findings.

Were the recent decisions that Mr. Hubbard made effective, according to the concepts in Chapter 7 – Decision Making? Explain your response.

1. How many ways can a Snail Darter Society, who has 25 members, elect an executive committee of 2 members, an entertainment committee of 3 members, and a welcoming committee of 2 members if members can serve on at most 2 committees?

What about existing content in global entertainment hubs? India and Nigeria make twice as many movies each year than Hollywood, and 70% of YouTube’s users are outside of the US. Can international content do well in the US? Is the industry interested?

This is a theoretical case taken from VHA Intensive Ethics Advisory Committee Training, 1998, as presented by Arthur R. Derse MD, JD. An 87-year-old woman widowed for six years, who is otherwise healthy, was visiting another city and abruptly became ill. She was seen in the emergency department of the local VA and admitted to the on-call physician. The on-call physician (who has not previously seen her) made the diagnosis of bowel obstruction arid made arrangements for a surgeon to evaluate her. The surgeon recommended surgery and obtained her consent for surgery. The surgeon expects an uneventful recovery. She is told that she will be on a ventilator for a short time after surgery. The patient tells the surgeon that is OK as long as it is for a short time. She tells the surgeon that she does not want to be dependent upon machines. She was asked upon admission whether she had an advance directive. She replied that she has a living will and a power of attorney for health care which names her daughter (who does not live in the area) as her health care agent. The patient undergoes surgery, which is successful in treating the underlying problem and does not show any malignant causes, but in the recovery room she has a cardiopulmonary arrest and is resuscitated. She is transferred to the ICU in the care of the on-call physician. The physician attempts to wean her gradually from the ventilator, but this is unsuccessful. Three days later, she has regained consciousness but is still intubated. Though she cannot speak because of the ventilator, she is able to write and asks that the tube be removed. The attending physician tells her that she is dependent upon the ventilator and the patient needs to remain on the ventilator until she can breathe on her own. She writes that she understands that she may die, but she does not want to be on machines. Her only children -- a daughter and son -- - have arrived. She repeats her wish to them that she wants the tube removed. She writes to her daughter that "I don't want to die, but we all have to die sometime, and I don't want to have to live on a machine. I know that whatever the outcome, God will take care of me." Her daughter tells the physician that her mother is adamant that she be off of machines and she respects her mother's wishes, even if she cannot breathe on her own. She says this is consistent with her previously expressed wishes and her religious beliefs. Her son tells the physician that he disagrees with his sister -- since his mother does not have a terminal condition, he can not see why she should not be forced to put up with the ventilator until she can be weaned from it. He feels that she is being shortsighted, and she will be thankful to have been kept on the ventilator when she is finally able to be weaned. Describe the criteria for giving "legal" consent. Were all elements met in this case? In other words, did the patient demonstrate decision-making capacity? Explain. (Minimum of 1 page including in-text citations and references in proper APA format)

FRAUD CASE :

JANNIE’S JEWELRY STORES

Jannie’s Jewelry Stores is a large corporation founded in 1998 that operates 23 retail jewelry stores located throughout the Southeastern United States. Jannie’s tailors its product line to middle-class shoppers, and specializes in engagement and wedding rings. Each store offers a large variety of jewelry (approximately 1,200 different items) with a fairly narrow price range ($50 to $3,500). Although sales increased rapidly during the first years of Jannie’s operations, sales during the last three years were flat. In an effort to increase sales, Jannie’s recently initiated its own credit card program.

The credit card program required new manual and new IT systems. Among other things, a credit department was established and an accounts receivable (AR) IT program was installed. The credit department’s responsibilities include approving customers for the company’s credit cards, following up on past-due receivables, and determining when customer accounts should be written off. The credit department has two employees: a credit manager and an AR clerk.

Customers’ credit card requests are initiated by the customer completing an online application in any of Jannie’s 23 retail locations. The online application requests the customer’s name, address, current monthly income, and Social Security number, among other information. Once the credit application is completed, the IT system automatically interfaces with an independent credit bureau. If the information included in the customer’s application matches the information in the credit bureau’s database, and if the customer has a credit score of in excess of a predetermined minimum score, the customer is extended a credit limit equal to 10 percent of his/her current monthly income. Higher credit limits require the approval of the credit manager.

The AR IT system interfaces with the company’s point-of-sale system, automatically posting sales transactions that occur at the company’s stores to the AR trial balance. Customers’ payments are received at a lockbox, posted to the company’s bank accounts daily by the bank. Copies of customer checks and remittance advices are received by the Credit Department, where the AR clerk posts them to customers’ accounts. Monthly customer statements are automatically generated by the IT system. Each month-end, a report of all customers with past-due balances is generated by the IT system. The credit manager reviews the report and instructs the AR clerk to follow-up on specific customer accounts.

Based on the results of the AR clerk’s follow-up activities, the credit manager determines which accounts should be written off, and processes any necessary adjustments through the IT system. The credit manager meets quarterly with Jannie’s CFO to discuss any particularly problematic accounts or unusual write-offs of customer accounts.

The Fraud

Before accepting a position with Jannie’s Jewelry, the credit manager was employed by Fred’s Fashions in a similar position. Fred’s owner decided to discontinue Fred’s credit card program and eliminated the credit manager’s position. The credit manager purchased a new home just prior to being laid off. The night prior to being laid off, the credit manager got engaged, promising that he and his new fiance´e would soon shop for an engagement ring. Even though the position at Jannie’s paid $20,000 less than the position at Fred’s, the credit manager was assured by Jannie’s president that as long as the company’s credit card program went well, the credit manager was sure to receive raises that would soon make the salary comparable to his former salary. In addition, the credit manager was looking forward to taking advantage of Jannie’s employee discount program when purchasing his fiance´e’s engagement ring.

The credit manager selected a $3,500 ring for his fiancee´, which with his employee discount cost $2,900. The purchase was financed on a Jannie’s credit card, by the credit manager overriding the company policy of granting a credit limit of 10 percent of a customer’s current monthly salary. The credit manager quickly fell behind in his required credit card payments. Although his account began to show up on the AR past-due report, the credit manager avoided directing the AR clerk to perform follow-up procedures for several months. When he learned that the company’s auditors would be visiting his department soon, he wrote his remaining account balance off using the IT system, fully intending to repay the balance when he receives his promised raise.

Question:

What are the red flags present that suggest the possibility of fraud? Are there conditions present suggested by the fraud triangle that may facilitate fraud? Are there IT-related issues that could facilitate fraud?

How would the fraud impact the financial statements? What accounts would be misstated?

PART 2 IAS 37 Provisions, contingent liabilities and contingent assets was issued in 1998. Prior to its publication, there was no International Accounting Standard that dealt with the general subject of accounting for provisions.

Mango Limited prepares its financial statements to 31 December each year. During the years ended 31 December 2016 and December 2017, the following events occurred. Mango limited is involved in extracting minerals in a number of different countries. The process typically involves some contamination of the site from which the minerals are extracted. Mango Limited makes good this contamination only where legally required to do so by legislation passed in the relevant country.

The company has been extracting minerals in Copperland for a long time and expects its site to produce output until December 2021. On 23 December 2016, it came to the attention of the directors of Mango Limited that the government of Copperland was 9 virtually certain to pass legislation requiring the making good of mineral extraction sites. The legislation was dully passed on 15 March, 2017. The directors of Mango Limited estimate that the cost of making good the site in Copperland will be N$ 2 Million. The estimate is of the actual cash expenditure that will be incurred on 31 December, 2021.

Required (a) Explain why there was a need for an accounting standard dealing with provisions, and summarise the criteria that need to be satisfied before a provision is recognised (12)

(b) Compute the effect of the estimated cost of making good the site on the financial statements of Mango limited for BOTH of the years ended 31 December 2016 and 2017. Give explanations of the figures you compute (13)

The annual discount rate to be used in any relevant calculation is 10%

The relevant discount factors at 10% are:

Year 4 at 10% 0.683

Year 5 at 10% 0.621