Investments are reported at fair value when a company has a significant influence over another company in which it invests. True False
Consolidated financial statements combine the separate financial statements of the purchasing company and the acquired company into a single set of financial statements. True False
When the investor has insignificant influence, the receipt of cash dividends is recorded as dividend revenue. True False
When significant influence exists, the investment should be accounted for by the equity method. True False
Bond investments are long-term assets that earn interest revenue, while bonds payable are long-term liabilities that incur interest expense. True False
In: Accounting
INTRO
Jones stormed into McMillan’s office. “I’ve had it! We’ve been here three months and nothing changes. Why aren’t they listening? Why do they keep leaving? What’s wrong?”
BACKGROUND
NewForm IT, founded in 2012 by four friends, provides IT consulting services to small businesses in the local and regional area. Three of the founders left the firm in 2014/2015, selling their interests at a handsome profit. The remaining founder and former CHRO, James Stanton, left nine months ago after clashing with the second owner, Rodney Collier, who purchased the company in 2015.
Sheila Jones and Ronnie McMillan recently purchased NewForm; Jones became its third CEO.
Three of the founders loved playing with computers and systems. While in college and in the early years of their careers, they created websites, developed computer games, played with mainframes, and made spare cash by solving individual and corporate IT problems. Systems and IT came easily for them, and they discovered that what other people feared were simple problems to them. They knew that they could make money by doing what they knew best. Their vision was to help small organizations solve their IT problems, and they discovered that they could charge exorbitant fees for doing so.
• The first founder to leave sold to her partners in 2014.
• Two founders—including the CEO—sold their shares to a group led by Collier in 2015 and left at that time.
• Stanton also sold his shares to Collier in 2015 but remained at his job.
• All four founders became multimillionaires when they sold the company.
• At the time of the 2015 sale, the company employed 53 IT consultants, most working 60-hour weeks and earning large bonuses.
Stanton and Collier had problems with each other from the outset. They differed on how to price consulting jobs, how to pay consultants, work hours, benefits (401k, leave policy, health insurance, etc.), among other things. Stanton saw little need to change what was successfully working; Collier wanted a fresh new corporate image. Corporate culture slowly began to move away from its original entrepreneurial style. Stanton and Collier continued to clash until nine months ago when Stanton walked away. Collier and his group sold NewForm six months later to a group led by Jones.
Jones is a senior executive with 23 years of industry experience, mostly with large, high- tech firms. When the founders formed the company they had asked her to join their team as a partner, but she declined. She had neither the time nor the inclination to do so. Today is different; she has made money in the industry, and her newly earned Ph.D. in leadership dynamics has given her the spirit and the insight to run the show. Because Collier wanted to sell and get out, Jones bought into NewForm at a discount and was ready to roll up her sleeves and get to work. McMillan, a long-term colleague, joined her as an equal partner and CHRO.
NewForm employs 83 people today, 61 of whom are IT consultants. These are highly skilled professionals, well paid and sought after in their field. While most have significant corporate experience, 49 have been with NewForm less than three years. Only four have been with NewForm for five years, and two have been with NewForm since its inception.
YOUR HRM CONSULTING FIRM
As a recent graduate, you have joined a 15-month-old startup HRM Consulting firm. You are excited about the opportunity this presents. Some of your team members are recent HRM graduates just like you, while others are SHRM-certified senior leaders who serve as mentors to the recent grads. The senior leaders, led by Patrick Conroy, have a financial stake in the firm and have established a plan that allows junior leaders to eventually earn the right to purchase a percentage of the firm and become a partner.
Early Monday mornings are set aside for virtual corporate meetings. This is when the partners and employees meet to focus on the firm no matter where they are in the world. These meetings are a combination of strategic think tanks, corporate planning sessions with problem analysis, mentoring, financial discussions, and discussions of any strategic decision that needs to be made. After 15 months, it is apparent that that these Monday meetings are the key that is leading to the team’s success.
This Monday morning is no different. Last week Conroy received a message from a company called NewForm IT and spent 30 minutes on the phone with McMillan, it’s CHRO. Conroy prepared an internal memo for the firm describing NewForm’s problems, and the group is prepared to discuss the issue at length.
As the conversation begins you consider your role in the firm. You know you try to do your best for your clients, yet one of your colleagues called you in for a brief but intense conversation about a recent client. Yes, you recognize that you may have missed a few social cues, might not have found the right words and advice for the client, and did not leave the client completely satisfied. But their challenge was particularly tough, and you probably should have had help from someone else in the firm. That job had been underbid, and the fee did not leave enough room for two consultants. You begin to wonder if this is the right career for you, or whether the senior team will ask you to leave. Your mind wanders.
While you muse on this, barely hearing the conversation in the room, Conroy looks directly at you and says, “You’ve worked with IT people, what do you think about the situation?” Panic sets in.
TODAY’S ISSUES AT NEWFORM
From 2012 until 2015, NewForm IT grew to 53 consultants. It had virtually no turnover during that time; two consultants were terminated for cause, one for discipline, and two left voluntarily when their spouses received out-of-state job offers. Stability was one of NewForm’s strengths; many consultants worked numerous jobs with one client, making it easier to produce quality results because they understood their clients’ needs and nuances; clients were satisfied. Employee compensation was higher than the market, and NewForm was making money for everyone.
The 2015 sale brought shock and change. As the only remaining founder, Stanton attempted to reassure everyone that nothing would change, but consultants identified subtle variations from the beginning. In the midst of changing internal rules, Stanton tried to maintain the status quo. Yet he had no real authority, and his suggestions fell on deaf ears. Early in 2018, he commissioned the Gallup Company to do its formal twelve question engagement survey. The results confirmed what he already knew: morale was suffering, and employees were no longer engaged. He wished he had done the survey and received baseline data 3-5 years ago.
Metrics are also down. Repeat clients, one of the company’s strengths, fell from a high of 57 percent (that is, 57 percent of clients engaged NewForm for a second job) in 2014 to 31 percent in 2017. Billable hours per consultant have also dropped, from 54 to 37 hours per week. 2018 numbers are not yet available but are trending a similar direction to 2017. NewForm is barely making a profit.
Stanton did what he knows best. With 17 years of HR experience, including 10 at the senior level, he thought he had seen it all. His techie friends had known that he was the perfect one to join them when they began the company, and no one was disappointed. In the early years at NewForm, he did everything that he wanted to do without anyone looking over his shoulder. Life changed when they sold the company, but he couldn’t imagine how wrong things would go or how fast. After commissioning the Gallup Survey, he believed he had the ammunition to return to the previous climate. But Collier had other ideas and a different perspective on how to view the survey results. Nine months ago Stanton decided to leave the firm.
Six months later, Collier, willing to take a small loss, decided to sell. Jones and McMillan, long-time friends of Stanton and the other founders, became willing buyers. They opened the books, spoke to Stanton, found a strong employee base, identified initial problems and saw nothing severe. This became their opportunity of a lifetime. Opportunity? Or endless problems?
THE MEETING
When Jones stormed into McMillian’s office, they had a long conversation about what was really going on. They decided to meet with Stanton to get his perspective. Stanton was more than happy to provide his views.
Stanton: Let me reiterate what I told you when you were deciding to purchase NewForm. This is a great company. When we founded it, we hired the best of the best. I used my contacts, years of experience and friends I knew in the recruitment field to hire great talent. The other owners did the same. We brought in people who loved the work, were independent and understood clients. When we gave them a job, we left them alone to do it. And they did it well.
Jones: How did the rest of the executive team fit in?
Stanton: We all (owners/executive team) bid on contracts, sometimes individually, sometimes in pairs. Since I was in charge of staffing, they looked to me both for scheduling needs and for identifying specific talent. Many of our clients had unique needs, and we sought to find that perfect match. Whoever the key bidder was oversaw our consultant and was ultimately responsible for results. After a while, each owner had built relationships with individual consultants; these relationships made reporting and bidding easier. While this may seem like an unrealistic utopia, it really worked here. Our productivity and turnover figures bear this out.
McMillan: What happened?
Stanton: My three very close friends decided to head for new challenges— it was as simple as that. It was cost prohibitive for me to buy them out, so I decided to sell at that point. The offer was great, I would be set for life, and although I would no longer have any controlling interest, I would retain my title and the ability to do my job. I loved…I STILL love…this company, and in 2015, I couldn’t see any other place to go. I was a little concerned about how I would get along with Rodney Collier, but we had a few good meetings, and I thought he would listen and was open to keeping the company as it was. Employees met him, we vetted him and his associates as carefully as we could, and we decided to do the deal. I knew that things would change, but we didn’t really see any red flags.
Jones: I know from my own experience that a lot can be hidden when you look to buy a company. What did……
Stanton: (Interrupting) I’ll say. He came in with two senior vice presidents and within a week everything was different. For the first time in my NewForm career, people came in to my office and closed the door; we NEVER had the need for a closed-door meeting. I can’t begin to describe the nature of the complaints; some were style, some were content; some were specific, some were general. I did my best to calm them down, give them platitudes of “things change, and we couldn’t have this forever,” or “we all have to get used to a new way of doing things,” and “I’ve spoken to Rodney and I can see that it’s already getting better.” Sometimes I found myself simply listening for half an hour.
And then the parade started. Slowly at first, but it was clear. Our best people started leaving. They would come into my office carrying a wrapped bottle of scotch for me. After a while they would just walk in, put my present on my desk, and sit down…. and tell me about their new opportunity. Some took pay cuts, some left the area, but it was clear. Their career here was no longer what they wanted it to be. I have a great collection of scotch…but I don’t want it.
McMillan: Is that when you went to Gallup?
Stanton: I had to do something. Collier wasn’t listening to me. He couldn’t HEAR me. When we would meet, he seemed to get angrier and angrier, wondering why I couldn’t do anything about the turnover, as if it were my fault. I know that he’s a data guy, so I thought that good information about the lack of engagement would help him see some of the issues. But by then it was too late. I didn’t want to be fired, so I left.
Jones: Thank you, this is very helpful. Ronnie and I already understood that employees suffered under the previous regime, but your insight helps clarify the situation. Ronnie, did we know what we were getting into? Maybe we want to sell it to you, James?
Stanton: Oh, I’ve moved on. But I love many of those people and can help wherever you need me.
Jones: You have already been more than kind. Ronnie, your thoughts?
McMillan: James, do you know that new HRM consulting firm across the river? They have a great group of senior and junior people. I’m thinking of contacting them. What do you think?
Stanton: Yes, I’ve known a few of them for years, and they’ve got some bright young kids working for them. I’m sure they’ll have some ideas for you.
ANSWER THE FOLLOWING:
In: Operations Management
Saudi Arabia steps up oil price war with big production
increase
Saudi Arabia has intensified the oil price war by ordering its
state-owned producer, Saudi Aramco, to raise the maximum production
rate to record highs of 13m barrels a day.
The world’s most profitable company told the Saudi stock exchange
on Wednesday that it would increase how much oil it can comfortably
pump per day by 1m barrels to its highest rate ever.
The state order to raise Aramco’s “maximum sustainable capacity”
comes after the kingdom launched a price war on rival petro-nations
by vowing to raise its production by a quarter from last month
despite an oil demand slowdown because of the coronavirus
outbreak.
The Saudi government plans to raise its national oil production to
an average of 12.3m barrels a day from next month, up sharply from
less than 10m barrels in recent months, in an attempt to corner the
global market.
(source:oilprice.com)
Saudi Arabia, the world’s biggest oil exporter, is understood to be
anxious to defend its market dominance against a rising tide of oil
production in the US and Russia after talks to agree new limits on
global production fell apart over the weekend.
Moscow refused to cooperate with an OPEC plan to curtail oil
production in line with a global demand slowdown, which is expected
to wipe out forecasts for demand growth in 2020.
In response, the Saudis have offered discount rates to key buyers,
in direct competition with Russia, which plans to raise its own
production by 300,000 barrels a day.
The collapse of Opec’s talks with major producers outside the
cartel, known as Opec+, marks an end to an almost four-year
alliance established in the wake of the 2016 oil price crash to
shore up market prices by limiting new supply into the
market.
Russia’s energy minister, Alexander Novak, has not ruled out
further talks with Opec to help stabilise the oil market. But both
sides of the price standoff are adamant that they are prepared to
weather a prolonged price rout.
Saudi Arabia has some of the lowest production costs in the world,
meaning Aramco could withstand low prices far better than other big
oil companies. However, the Saudi economy relies more heavily on
oil revenues than most countries and reportedly requires prices of
about $50-$60 (£38-£46) a barrel to support its state
coffers.
In Russia, production costs are higher but its economy is more
diverse and arguably more resilient to another oil market
downturn.
The oil price war was ignited this week by the steepest price crash
since 1991, which drove prices down to four-year lows of about $35
a barrel on Monday and sparked fears of an extended oil market
downturn in 2020.
The price shock has wiped billions from the market value of oil
companies this week, forcing down the share price of big firms
including Shell and BP by about 20%, and raising concern over their
dividends.
Analysts at Rystad Energy have warned that oil prices in the $30
territory could spell trouble for oilfield service companies too as
big producers cut their spending on new projects. This spending
could fall by $100bn in 2020 and a further $150bn next year, Rystad
said.
The geopolitical spat has also compounded fears of a global
economic slowdown, which accelerated this year after the outbreak
of the Covid-19 virus
(Adapted from the Guardian Wed 11 Mar 2020)
Questions
.
1) What has happened to the price of oil since the beginning of
January 2020? According to the article which country, Russia or
Saudi Arabia, is in a better position to sustain prices at this low
level for the longest period of time? Justify your answer.
2) According to the article why has Saudi Arabia decided to
increase oil production to record levels at this time?
3) Using demand and supply diagrams examine the most likely causes
for the fall in the price of oil since the beginning of January
2020.
4) What is a cartel and how does it influence the price and output
of oil. In your answer you should refer to the type of market
structure normally associated with a cartel and the features which
help or hinder collusion.
5) Why are some of the members of OPEC and other oil producers
increasing production even though the price elasticity of oil is
relatively inelastic?
In: Economics
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In: Accounting
OCloud Corportation's suite of software products and services provides secure and scalable solutions for global companies. The following is an extract from the company's 2020 and 2019 comparative income statements and statement of financial position. The market price of OCloud's common shares was $41.12 and $38.20 on June 30, 2020, and June 30, 2019, respectively. OCloud declared dividends per common share of $0.476 and $0.412 for 2020 and 2019, respectively.
OCLOUD CORPORTATION
Years Ended June 30, 2020 and 2019
(in thousands)
| Comparative Income Statement | 2020 | 2019 |
| Total revenues | $2,276,557 | $1,828,767 |
| Total cost of revenues | 766,850 | 569,174 |
| Total operating expenses | 1,169,419 | 874,972 |
| Net Income | $1,009,546 | $300,221 |
| Statement of Financial Position | 2020 | 2019 |
| Total assets | $7,490,691 | $5,175,412 |
| Total liabilities | 3,960,177 | 3,762,299 |
| Common share capital | 1,436,263 | 821,380 |
| Total shareholders' equity | $3,530,514 | $1,413,113 |
| Weighted average number of common shares outstanding | 253,195 | 242,375 |
Calculate the return on shareholders' equity for OCloud in 2020. Note that OCloud's articles of incorporation authorize only common shares. The average return for the shares listed on the Toronto Stock Exchange in a comparable period was 19.8%. (Round answer to 1 decimal place)
Return on shareholders' equity:___%
Calculate earnings per share for the years 2020 and 2019 (Round answers to 2 decimal places)
2020 2019
Earnings per share $ per share $ per share
Calculate the dividend payout ratio and the dividend yield for 2020 and 2019. (Round answers to 1 decimal place)
2020 2019
Dividend payout ratio % %
Dividend yield % %
In: Accounting
1. Suppose the government restricts foreign lenders from lending money in the US loanable funds market. What happens to the equilibrium interest rate in the US?
2. Suppose credit card companies encourages households to spend more. What happens to the equilibrium quantity of loans in the loanable funds market?
In: Economics
List the major senses in brain. Each sense requires the interpretation of different kinds of information impinging upon us from our environment. In what form(s) does the information do we sense come to us, and what sense organs are stimulated. Describe this in greater detail for two senses.
In: Psychology
We have the spot rate for Japanese Yens to be Y121 per $1. The nominal (riskless) rates in Japan and US are 0.05 and .07 respectively. The forward rate is Y118 per $1. What nominal (riskless) rate of return for $ investments can an US investor earn by benefitting from the above rates?
In: Finance
E4.1 (LO 1, 3) The trial balance columns of the worksheet for Dixon Company at June 30, 2020, are as follows.
Dixon Company
Worksheet
For the Month Ended June 30, 2020
Trial Balance
Account Titles Dr. Cr.
Cash 2,320
Accounts Receivable 2,440
Supplies 1,880
Accounts Payable 1,120
Unearned Service Revenue 240
Owner’s Capital 3,600
Service Revenue 2,400
Salaries and Wages Expense 560
Miscellaneous Expense 160
7,360 7,360
Other data:
1. A physical count reveals $500 of supplies on hand.
2. $100 of the unearned revenue is still unearned at month-end.
3. Accrued salaries are $210.
Instructions Enter the trial balance on a worksheet and complete the worksheet.
In: Accounting
Which of the following sources of income would NOT result in any increase in Taxable Income (Division C) for the taxpayer who receives it?
A. Workers’ compensation payments.
B. A research grant received by a student in a university program.
C. Amounts that are withdrawn from an individual’s RRSP.
D. Spousal support payments.
In: Accounting