Read the case about the conflict between McDonald's and its franchisees. Then, using the 3-step problem-solving approach, answer the questions that follow. Background and Scale Sixty-nine million. That is the number of customers McDonald’s serves per day around the world! The company does a staggering volume of business. But it might surprise you that despite the brand’s global reach and incredible staying power, it is in the midst of a serious conflict with its other important customers—its franchisees. McDonald’s has 5,000 franchisees around the world who run 82 percent of the chain’s 36,000 restaurants, accounting for just under $30 billion or a third of the company’s total revenue and employing 90 percent of its employees. This means the average franchisee operates six to seven restaurants, and the company lives or dies by their performance.1 Trouble under the Golden Arches The relationship between the company and its franchisees is very complicated and increasingly strained. While franchisees own their respective businesses, McDonald’s owns the land and buildings they use. That means the company is the landlord and has ultimate say over whether particular restaurants open or close. The company also largely dictates menu items, required equipment, and most other details, including pricing in many instances. (One franchisee said he controls the price of fewer than 20 of 100 menu items.)2 Franchisees must follow directions from the company and pay an assortment of expenses and fees, such as rent of 15 percent of revenues, a royalty of 5 percent of revenues, and 5 percent of revenues for advertising.3 On top of this, various additions to the menu require new equipment. The McCafe coffee and espresso equipment can cost up to $20,000 per machine, expanding grill space to accommodate all-day breakfast takes another $5,000, and installing a second drive-thru window can cost $100,000.4 A milkshake machine costs $20,000, and a new grill $15,000.5 While the corporation focuses on the restaurants’ top line, operators worry about what’s left after paying rent, payroll, royalties, and other expenses.6 Last but not least, if the movement to boost minimum wages to $15 across the country succeeds, the burden will fall on the franchisees. McDonald’s decided to raise wages in all its corporate-owned restaurants to $1 above the minimum wage. The move was presumably intended to help keep up with similar wage hikes by Walmart and Target,7 with whom the company often competes for employees. The problem? Corporate stores compete with franchisees too and don’t bear the costs outlined above. A wage hike will likely have a much smaller impact on the corporate-owned stores versus the franchisees. Impact and Potential Causes The franchise model has worked very well for McDonald’s and the majority of its franchisees. Revenues have exceeded expenses and many franchisees have become quite wealthy, which explains why many own multiple restaurants. However, franchisee satisfaction and performance have steadily declined. In 2015, for the first time McDonald’s closed more stores than it opened, and the level of same-store sales (a key performance measure) also declined. Franchisees and Wall Street analysts attribute much of the lackluster performance and conflict to poor corporate leadership and policies. Corporate leaders dictate menu items, pricing, and strategy to franchisees. The addition of McWraps, salads, yogurt parfait, and specialty coffees, for instance, were meant to compete with the likes of Chipotle, Burger King, Shake Shack, and Wendy’s, as well as to keep up with evolving customer tastes.8 Boosted sales is certainly a good outcome for the corporate arm of the company, given it takes a cut of all revenues, but franchisees argue that enough money isn’t left over for them. Some initiatives, like the dollar menu, are actually money losers for some franchisees, yet it is difficult not to offer them because of national advertising that promotes them, not to mention pressure from regional and corporate representatives. Another franchisee provided an example. “One time our coffee price was a nickel over what the advertising price was and the head of the McDonald’s region came in and he said: ‘You are over. You can’t do this.’ That was the first time he told us to sell our business.”9 Beyond the financial implications, many franchisees also feel various initiatives have eroded the McDonald’s brand, which makes “the promise of serving good-tasting food fast.” The company requires that any order be filled in 90 seconds or less, which many franchisees say is unrealistic for many (new) menu items. These standards will be put to the test yet again with the “Create Your Taste” initiative, which allows customers to personalize their burgers. One longtime but now former franchisee, Al Jarvis, said in an interview that he “loves the taste, but the complexities of making it came to epitomize his disillusionment with McD’s. ‘The service times went up because of the expansion of the menu … I think they went a little overboard. When I would … see cars backed up at the drive-thru my stomach would just knot up. The people were different, the company was different. It became very frustrating … I wanted to get the hell out.’” And he did.10 There is evidence to support Jarvis’s concerns. The American Customer Care Satisfaction Index Restaurant Report for 2015 ranked McDonald’s dead last among all fast-food restaurants. This index measures staff courtesy, speed of checkout or delivery, food quality, and order accuracy.11 The frustration Jarvis expressed is increasingly common and has generated an “us vs. them” dynamic between franchisees and McDonald’s corporate staff. Franchisees also perceive that McDonald’s is using them as a shield, for instance, in deflecting the question of wages by saying it is up to franchisees to do as they see fit. Doing one thing at corporate-owned stores, which account for only 10 percent of employees, and doing something else at franchise stores has the potential of creating more intense conflicts. Steve Easterbrook, relatively new as CEO, is aware of the performance challenges and determined to make significant changes. It will be up to McDonald’s employees and franchisees at all locations to effectively implement them.12 Utilizing the example outlined, post your response to Connect Case: What About McDonald’s Other Customers. Your posting will look like: Stop 1: (Define the problem in the case.) Stop 2: (Identify the OB concepts or theories to use to solve the problem.) Stop 3: (Explain what you would do to correct the situation.)

Read the case about the conflict between McDonald's and its franchisees. Then, using the 3-step problem-solving approach, answer the questions that follow. Background and Scale Sixty-nine million. That is the number of customers McDonald’s serves per day around the world! The company does a staggering volume of business. But it might surprise you that despite the brand’s global reach and incredible staying power, it is in the midst of a serious conflict with its other important customers—its franchisees. McDonald’s has 5,000 franchisees around the world who run 82 percent of the chain’s 36,000 restaurants, accounting for just under $30 billion or a third of the company’s total revenue and employing 90 percent of its employees. This means the average franchisee operates six to seven restaurants, and the company lives or dies by their performance.1 Trouble under the Golden Arches The relationship between the company and its franchisees is very complicated and increasingly strained. While franchisees own their respective businesses, McDonald’s owns the land and buildings they use. That means the company is the landlord and has ultimate say over whether particular restaurants open or close. The company also largely dictates menu items, required equipment, and most other details, including pricing in many instances. (One franchisee said he controls the price of fewer than 20 of 100 menu items.)2 Franchisees must follow directions from the company and pay an assortment of expenses and fees, such as rent of 15 percent of revenues, a royalty of 5 percent of revenues, and 5 percent of revenues for advertising.3 On top of this, various additions to the menu require new equipment. The McCafe coffee and espresso equipment can cost up to $20,000 per machine, expanding grill space to accommodate all-day breakfast takes another $5,000, and installing a second drive-thru window can cost $100,000.4 A milkshake machine costs $20,000, and a new grill $15,000.5 While the corporation focuses on the restaurants’ top line, operators worry about what’s left after paying rent, payroll, royalties, and other expenses.6 Last but not least, if the movement to boost minimum wages to $15 across the country succeeds, the burden will fall on the franchisees. McDonald’s decided to raise wages in all its corporate-owned restaurants to $1 above the minimum wage. The move was presumably intended to help keep up with similar wage hikes by Walmart and Target,7 with whom the company often competes for employees. The problem? Corporate stores compete with franchisees too and don’t bear the costs outlined above. A wage hike will likely have a much smaller impact on the corporate-owned stores versus the franchisees. Impact and Potential Causes The franchise model has worked very well for McDonald’s and the majority of its franchisees. Revenues have exceeded expenses and many franchisees have become quite wealthy, which explains why many own multiple restaurants. However, franchisee satisfaction and performance have steadily declined. In 2015, for the first time McDonald’s closed more stores than it opened, and the level of same-store sales (a key performance measure) also declined. Franchisees and Wall Street analysts attribute much of the lackluster performance and conflict to poor corporate leadership and policies. Corporate leaders dictate menu items, pricing, and strategy to franchisees. The addition of McWraps, salads, yogurt parfait, and specialty coffees, for instance, were meant to compete with the likes of Chipotle, Burger King, Shake Shack, and Wendy’s, as well as to keep up with evolving customer tastes.8 Boosted sales is certainly a good outcome for the corporate arm of the company, given it takes a cut of all revenues, but franchisees argue that enough money isn’t left over for them. Some initiatives, like the dollar menu, are actually money losers for some franchisees, yet it is difficult not to offer them because of national advertising that promotes them, not to mention pressure from regional and corporate representatives. Another franchisee provided an example. “One time our coffee price was a nickel over what the advertising price was and the head of the McDonald’s region came in and he said: ‘You are over. You can’t do this.’ That was the first time he told us to sell our business.”9 Beyond the financial implications, many franchisees also feel various initiatives have eroded the McDonald’s brand, which makes “the promise of serving good-tasting food fast.” The company requires that any order be filled in 90 seconds or less, which many franchisees say is unrealistic for many (new) menu items. These standards will be put to the test yet again with the “Create Your Taste” initiative, which allows customers to personalize their burgers. One longtime but now former franchisee, Al Jarvis, said in an interview that he “loves the taste, but the complexities of making it came to epitomize his disillusionment with McD’s. ‘The service times went up because of the expansion of the menu … I think they went a little overboard. When I would … see cars backed up at the drive-thru my stomach would just knot up. The people were different, the company was different. It became very frustrating … I wanted to get the hell out.’” And he did.10 There is evidence to support Jarvis’s concerns. The American Customer Care Satisfaction Index Restaurant Report for 2015 ranked McDonald’s dead last among all fast-food restaurants. This index measures staff courtesy, speed of checkout or delivery, food quality, and order accuracy.11 The frustration Jarvis expressed is increasingly common and has generated an “us vs. them” dynamic between franchisees and McDonald’s corporate staff. Franchisees also perceive that McDonald’s is using them as a shield, for instance, in deflecting the question of wages by saying it is up to franchisees to do as they see fit. Doing one thing at corporate-owned stores, which account for only 10 percent of employees, and doing something else at franchise stores has the potential of creating more intense conflicts. Steve Easterbrook, relatively new as CEO, is aware of the performance challenges and determined to make significant changes. It will be up to McDonald’s employees and franchisees at all locations to effectively implement them.12 Utilizing the example outlined, post your response to Connect Case: What About McDonald’s Other Customers. Your posting will look like: Stop 1: (Define the problem in the case.) Stop 2: (Identify the OB concepts or theories to use to solve the problem.) Stop 3: (Explain what you would do to correct the situation.)

Profit Center Responsibility Reporting for a Service Company

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three support departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

Required:

1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

2. What is the profit margin of each region? Round to one decimal place.

Identify the most successful region according to the profit margin.

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions?

1. The method used to evaluate the performance of the regions should be reevaluated.
2. A better regional performance measure would be the return on investment (operating income divided by regional assets).
3. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets).
4. None of these choices would be included.
5. All of these choices (a, b & c) would be included.

Terry J. Lundgren, CEO and president of Macy's, was asked, “[Do you have] any job-seeking advice for college grads?” Here's what he had to say:

Use whatever contact you have to try to get your résumé read. That's the most important thing—just to get it in front of people. Because we're all flooded with, of course, thousands and thousands of résumés in a company of our size, and getting your résumé read is not an automatic. And so do what you can do to get it in front of the people who matter who will read it. It's not the CEO typically, by the way; it's the HR person or the head of recruiting or head of training or whatever. Third, don't stop there. Don't just do it online, because it's easy to do it online. Do it online and then put it in an envelope and send it to the top company that you're interested in pursuing. And then follow up with a phone call, and talk to the assistant and say: “I just want to make sure that my résumé's getting read. I'm very interested in your company, and it's really important to me. And I just want to know—can you give me advice?—is there anything that I can do to get my résumé in front of your boss?” Whatever you have to say, just to show the most important thing—that you're hungry. And to convince them, maybe you use a little of your acting skills. And I'll probably relate it to college dating—you know, use a little, “I'm really interested in you”— to say: “This is the company I want to work for. Yours is the company that I want to work for.” And then once you get, hopefully, more than one opportunity, you're back in charge to say, “Where do I want to go and where do I want to work.”31

Based on Lundgren's comments and please include your own real-world perspectives and experiences, respond to the following questions:

1. Explain what Lundgren means by showing “you're hungry” for a position. Describe ways in which you can show hunger in a positive way. How have you done this in your past experiences?

2. What does he suggest about the effectiveness of relying exclusively on electronic means to submit job applications? What combination of communication channels do you consider optimal for gaining a job of interest? Any stories from your own life on what worked and didn't work when you used electronic submission practices?

3. He suggests that you should view the process like dating. In what ways does this analogy make sense to you? Explain.

This week we learned about the Foreign Corrupt Practices Act (FCPA). In that learning we saw that a key to reducing the penalty is through keeping books and records that are clean and transparent. Consider this case:

A USA public company doing business in Freedonia (a made up name from another Marx Brothers movie!) is compelled to bribe local officials in order to be the first to receive a business license for a certain type of industry there. The competition is fierce, but local government officials have unabashedly spread the word that under the table bribery payments to them from the USA company can seal the deal and that's why the USA company is feeling the pressure to participate in the bribe. This would be a violation of the FCPA.

The USA company participates in the fraud, bribing the government officials sufficiently to get the license first, before their competition. The payments are on the books, but hidden, so to speak, in order to get the tax deduction. The payments are cleverly disguised in the expense accounts to appear as normal expenditures.

You are the USA government investigator searching for the fraud after the US government has been tipped off that the fraud happened in Freedonia.

1. What income statement expense accounts would you research for evidence of bribery payments being made even though not so indicated as bribery payments?
2. What type of evidence would you be looking to gather to prove the case?
3. Company officials of the USA company did not want to have all the bribery expenditures traceable directly to them. How else could they disguise the actual payments from the company?
4. Given from your answers above, that the financial statements are obviously misstated, why it is that we don't often see public companies reissue their financials when these FCPA frauds are caught or admitted to?   
5. The USA company hires you to institute policies and procedures to prevent the company and its employees from participating in bribery/corruption schemes in the future. Describe what you advise the company to do.

1.

Which statement concerning lower-of-cost-or-net-realizable-value (LCNRV) is incorrect?

LCNRV is an example of a company choosing the accounting method that will be least likely to overstate assets and income.

The LCNRV basis is justified because of a decline in the selling price of the inventory item.

LCNRV is applied after one of the cost flow assumptions has been applied.

Under the LCNRV basis, market does not apply because assets are always recorded and maintained at cost.

2.

Ayayai Corp. sells six different products. The following information is available on December 31:

When applying the lower-of-cost-or-net-realizable-value rule to each item, what will Ayayai total ending inventory balance be?

$312000

$300975

$300700

$300300

3. Use the following information regarding Skysong, Inc. and Kingbird, Inc. to answer the question “Which amount is equal to Skysong, Inc.'s "days in inventory" for 2022 (to the closest decimal place)?” (Use 365 days for calculation.)

35.8 days

34.4 days

39.7 days

42.9 days

4.

Use the following information regarding Cullumber Company and Oriole Company to answer the question “Which of the following is Cullumber Company's "cost of goods sold" for 2021 (to the closest dollar)?”

$264034

$263120

$248132

$247940

5.

Use the following information regarding Crane Company and Cullumber to answer the question “Which of the following is Cullumber's "cost of goods sold" for 2022 (to the closest dollar)?”

$260913

$240100

$172620

$240100

6.

The difference between ending inventory using LIFO and ending inventory using FIFO is referred to as the

inventory reserve.

LIFO reserve.

FIFO reserve.

periodic reserve.

7.

The LIFO reserve is

the amount used to adjust inventory to historical cost.

the difference between the value of the inventory under LIFO and the value under average cost.

the difference between the value of the inventory under LIFO and the value under FIFO.

an amount used to adjust inventory to the lower of cost or market.

8.

Ayayai Corp. reported ending inventory at December 31, 2022 of $984000 under LIFO. It also reported a LIFO reserve of $172000 at January 1, 2022, and $246000 at December 31, 2022. Cost of goods sold for 2022 was $4018000. If Ayayai Corp. had used FIFO during 2022, its cost of goods sold for 2022 would have been

$4092000.

$4264000.

$3772000.

$3944000.

The following events occurred during 2021 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material.

1.) A manufacturing company recognized a loss on the sale of investments.

2.) An automobile manufacturer sold all of the assets related to its financing component. The operations of the financing business is considered a component of the entity.

3.) A company changed its depreciation method from the double-declining-balance method to the straight-line method.

4.) Due to obsolescence, a company engaged in the manufacture of high-technology products incurred a loss on inventory write-down.

5.) One of your clients discovered that 2020’s depreciation expense was overstated. The error occurred because of a miscalculation of depreciation for the office building.

6.) A cosmetics company decided to discontinue the manufacture of a line of women’s lipstick. Other cosmetic lines will be continued. A loss was incurred on the sale of assets related to the lipstick product line. The operations of the discontinued line is not considered a component of the entity.

Required: Determine whether each of the above events would be reported as income from continuing operations, income from discontinued operations, or not reported in the current year’s income statement.

Additionally: There is a component required for discontinued operations. Please review your answer using the component requirement. If an item is in continuing operations, please state the line where it would be reported. (This is what I need assistance with)

Assume that at maximum hourly productions levels, the United States can produce either 8 yards of fabric or 4 bushels of wheat, whereas Japan can produce either 5 yards of fabric or 6 bushels of wheat. Based on this information,

Mr. Chai sells various types of toys throughout Malaysia, three of the accounts in the ledger of Mr. Chai indicted the following:

Balance at 1 January 2020:

1. Insurance paid in advance RM562
2. Wages outstanding RM306
3. Rent rreceivable, received in advance RM36

During 2020, Mr. Chai:

1. Paid for insurance RM1019 by bank standing order
2. Paid RM15000 wages in cash
3. Received RM2600 rent by cheque from the Ferdy

At 31 December 2020:

1. Insurance prepaid was RM345
2. Wages accrued amounted to RM419
3. Rent receivable was RM106

Required:

1. Prepare the prepaid insurance, accrued wages and rent receivable accounts for the year ended 31 December 2020
2. Prepare the income statement extract showing clearly the amounts of insurance expense, wages expense and rent revenue for the year ended 31 December 2020
3. Explain the effects on the financial statements of accounting for:

1. The expenses accrued at year end
2. The income received in advance at year end

4. Explain the purpose of accounting for:

1. The expenses accrued at year end
2. The income received in advance at year end

Consider the new product offerings, brand identity, financial health, and global economy. Do you think will Apple or Samsung will enjoy the largest per cent revenue increase (not dollars) in total sales in 2020? What about 2021? Which company will have the lowest per cent revenue increase? What are the company and product strengths of Apple and Samsung? Please explain your reasons why for both opinions.