(7) On the Histogram worksheet, calculate all frequencies of the distribution using the table shown. (To three decimal places) The relative frequency of all values in the (X ≤ 7) range is ______.

(8) On the Histogram worksheet, calculate all frequencies of the distribution using the table shown. (To three decimal places) The relative frequency of all values in the (9 ≤ X ≤ 18) range is ______.

(9) On the Histogram worksheet, calculate all frequencies of the distribution using the table shown. (To three decimal places) The relative frequency of all values in the (X ≥ 15) range is ______.

(10) On the Histogram worksheet, calculate all frequencies of the distribution using the table shown. (To three decimal places) The relative frequency of all values in the (12 ≤ X < 20) range is ______.

2019 is the first year of operation for Flitz Company. Applicable tax rates enacted by the end of 2018 are as follows:2019 25%2020 20%2021 and later 30%Compute the amount of deferred taxes to appear on the balance sheet at 12/31/19 with proper classifications, prepare the journal entry to record income tax expense for 2019, and show the current and deferred portions of income tax expense on the income statement for 2019.(a) In 2019 Flitz had pre-tax financial income of $450,000.(b) Pre-tax financial income was different from taxable income due to the following:Depreciation, the straight-line method for financial purpose while MACRS is used for tax purpose 35,000(tax-deductible in 2019, expense in 2020 20,000 in 2021 15,000)Fine for pollution 8,000(not tax-deductible, expense in 2019) Revenue received in advance 14,000(taxable 2019, revenue in 2020)Revenue from investment on equity method for financial purpose and cost method is used for tax purpose 10,000(revenue in 2019, taxable in 2020) Litigation accrual 80,000(expense in 2019, tax-deductible in 2022)Interest received on municipal bonds 6,000(revenue in 2019, not taxable)

Cullumber Company is trying to determine the value of its ending inventory as at February 28, 2017, the company’s year end. The accountant counted everything that was in the warehouse as at February 28, which resulted in an ending inventory valuation of $69,000. However, he was not sure how to treat the following transactions, so he did not include them in inventory.

For each of the below transactions, specify whether the item should be included in ending inventory, and if so, at what amount.

1.Cullumber Company shipped $850 of inventory on consignment to Oriole Company on February 20. By February 28, Oriole Company had sold $345 of this inventory for Cullumber.

2. On February 28, Cullumber was holding merchandise that had been sold to a customer on February 25 but needed some minor alterations. The customer has paid for the goods and will pick them up on March 3 after the alterations are complete. This inventory cost $480 and was sold for $870.

3. In Cullumber’s warehouse on February 28 is $400 of inventory that Craft Producers shipped to Cullumber on consignment.

4. On February 27, Cullumber shipped goods costing $970 to a customer and charged the customer $1,320. The goods were shipped FOB destination and the receiving report indicates that the customer received the goods on March 3.

5.On February 26, Teulon Company shipped goods to Cullumber, FOB shipping point. The invoice price was $360 plus $35 for freight. The receiving report indicates that the goods were received by Cullumber on March 2.

6.Cullumber had $600 of inventory put aside in the warehouse. The inventory is for a customer who has asked that the goods be shipped on March 10.

7.On February 26, Cullumber issued a purchase order to acquire goods costing $755. The goods were shipped FOB destination. The receiving report indicates that Cullumber received the goods on March 2.

8.On February 26, Cullumber shipped goods to a customer, FOB shipping point. The invoice price was $340 plus $26 for freight. The cost of the items was $300. The receiving report indicates that the goods were received by the customer on March 4.

Whispering Company sells televisions at an average price of $929 and also offers to each customer a separate 3-year warranty contract for $84 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 315 televisions and 215 warranty contracts for cash. It estimates the 3-year warranty costs as $21 for parts and $41 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.

Part 1

Record any necessary journal entries in 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Part 2

What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

Part 3

In 2018, Whispering Company incurred actual costs relative to 2017 television warranty sales of $2,020 for parts and $4,040 for labor.

Record any necessary journal entries in 2018 relative to 2017 television warranties. Use "Inventory" account to record the warranty expense. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Part 4

What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet and how would they be classified?

List of Accounts

Question 11 pts

  Which of the following are in accordance with generally accepted accounting principles?

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Question 21 pts

The balance in the office supplies account on June 1 was $4,300, supplies purchased during June were $1,500, and the supplies on hand at June 30 were $2,000. The amount to be used for the appropriate adjusting entry is

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Question 31 pts

Melman Company purchased equipment for $5,000 on Novmber 1. It is estimated that annual depreciation on the computer will be $960. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

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Question 41 pts

Adjusting entries do not include what account?

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Question 51 pts

Action Real Estate received a check for $12,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $12,000. Financial statements will be prepared on July 31. Action Real Estate should make the following adjusting entry on July 31:

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Question 61 pts

The balance in the Prepaid Rent account before adjustment at the end of the year is $8,000, which represents two months’ rent paid on December1. The adjusting entry required on December 31 is to

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Question 71 pts

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

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Question 81 pts

Adjusting entries are

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Question 91 pts

Artie's City College sold season tickets for the 2012 football season for $80,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30

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Question 101 pts

Cindy’s Chocolates paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29–31). Employees work 5 days a week and the company pays $2500 per week in wages. What will be the adjusting entry to accrue wages expense at the end of January?

Q1.Discuss Lewins model and Kotters model for change with reference to GE Motors.-7 marks

Q2.What are the two strategies adopted by GE Motors in order to bring change and gain market share.-8 marks.

Abstract— The main purpose of this article was to elaborate and bring to light the core concept of the organization change, how it works, diverse factors which moves organization to change, steps for change, resistance for change, change forces, change management approaches and last an example of General Motor (GM) has given that how change was taken place in the organization and what was the strategies for change management. Recommendations and conclusion form the last part of the paper. Keywords - Organization change, Factors, Resistance, GM.

ORGANIZATIONAL CHANGE: A BRIEF INTRODUCTION The business world to day is going very fast and new technology new methods of production and new taste of customers and new market trends as well as new strategies for best control of the organizations and motivation of employees are emerging and taking place from old to new methods, because the customers are the emperor of market and most of the company now spending billions of amount on research and development in the organization, by keeping in view all these things the managers and experts of the today businesses now compel to decide about the change management in the organizations, because business activities now are globalize, and every organization strive to sustained the loyal customers, trained the employees, introduce and adopt new methods of production and best control the activities of the organization, so from here the concept of change management or organization change starts. When the company feel that the activities which they are doing, the management, the way of administration, the use of technology, the human resource policies, the culture of the organization, the liking and disliking the contents and context of the organization by the employees, organization structure, group concept ,the product quality are continuously destroying the image and reputation of the organization the question arises that how will change the organization in present scenario, so when the expert specialist decides about all the situation and preparing for changing the organization it leads to the concept of organizational change or change management[1] . In the word of coetsee he said that it is the ability of the management that how they can get maximum benefits and support form change which reduces resistant from the side of employees and encourage appreciate acceptance and support. The process of changing the activities of the organization as well as the implementation of the procedures and technologies to achieve the desire objective of the organization, in simple words to change the environment of the business organization and to achieve a high profit from that change, usually change management includes different aspects such as control change, adaptation change and effecting change. The final goal of the change management is the long term sustainability of the organization. organizational change simply means to change the activities of the organization concern it may includes to change the culture of the organization, technology, business process, change of employees, rules and procedures, recruitment and selection, design of jobs, method of appraisal, and human resource techniques, physical environment of the organization, methods of training and development, job skill and knowledge etc. when the change of the concern organization is fundamental it is called organization transformations. Change management means when all the needed actions are taken to improve the present situation for future to implement the change strategies to get the maximum advantages and also see that the objectives of the organization is achieving or not.

Factors Behind The Organization Change As we have mentioned before that organization change occurs due to some factors that may be external or internal, such factors may also bring change in the activities of he organization and may also create problems to harder the change process, as every know that change creates resistance, and this resistance may creates huge problems, resistance to change is also from the old employees or middle level managers or people as they always appose to the change strategies due to their own way of thinking and perception regarding the change concept, this may be due to lake of knowledge about the situation or due to the self interest of thold employees but what ever may be the reasons but it is fact that change always bring resistance, now it is up to mangers that how they reduce the intensity of the resistance and implement the whole change strategic business model in the organization.

Change Forces The following are the main forces which bring change in the organization. These are as under but it may depend on the organization environment and the context of the organization. Change in new government policies and legislation, Change and development in new materials, Social and culture value change, Change in national and global economic condition and trade policies and regulation, Technology development, Change in customer taste and requirements, Development and innovation in manufacturing process, New products and services design innovation, New ideas about the products that how to deliver customers value and satisfaction, Office and factory relocation closer to customers, suppliers, and market, nature of the workforce, technology , economic shocks, completion, social trends, and world politics.

Resistance to Change Change creates resistance to change in every organization; it is the react response from the side of the old employees. When change strategies have implemented in the organization the employees quickly respond by voicing complaints, engaging in work slowdown, threatening to go on strike, etc. but care should be taken by the change management expert to overcome the resistance

Major force for resistance to change: resistance to change forces categorize into two main heading, 1) individual sources and 2) organizational sources

1). Individual Source Resistance To Change Includes The Following. Habit, security, selective information processing, economic factors, fear of the unknown.

2). Organizational Sources for Resistance to Change Include the Following. Limited focus on change, organization structural inertia, threat to expertise, threat to established power relationship, group inertia, threat to established resource allocation.

3). Overcoming to Resistance to Change. Overcoming to resistance to change means to use the tactics to reduce the intensity of the resistance to change, the change agents have the ability to use these tactics. are as under. a) Implementing change fairly. b) Selection people who accept change

c) Education and communication

d)Participation

e) Building support and commitment

f) Manipulation and cooptation

.Organizational Change Managing Approaches

When change management taken place in the organization, now the question is how best one can manage change. There are four approaches to change management. Lewins classic three step model of change process, kotters eight step plan, action research, and organizational development. According to the lewins model the organization must follow three steps for successful change management, which are. Unfreezing: the status quo, changing to overcome the pressure of both individual resistance and group conformity. Movement; desire end state, a change process that transforms the organization from the status quo to a desired end state. And refreezing the new change to make it permanent, stabilizing a change intervention by balancing driving and restraining forces. [4]

.Kotters Eight Step Plan. To more elaborate the lewins model kotters have develop eight steps which can be adopted to implement change.

These are 1) Establish a sense of urgency that why a change is needed. 2) Form enough power to lead the change 3) Create a new vision to direct the change and strategies for achieving the vision 4) Vision communication in organization 5) Empower others to act on vision by removing barriers 6) Plan for, create short term reward to move the organization toward the new vision 7) Continues improvement and make necessary adjustment in new programs. 8) Reinforce the change by demonstrating the relationship between new behaviors. (Source Stephen, 2005)

Organizational Development Techniques The change agent considers the following technique to bring organizational development. Sensitivity training, team building, process consultation, survey feed back, appreciative inquiry and inter group development. These are the important technique which should adopt by change specialist to bring effective development in the organization, because organizational development is vital for organizational change.

Change Management at General Motor

General motor established in 1908. that time the company was the sole carmaker dealer in the region, e.g. Michigan, first it was a holding Buick company, till 1920 it was becoming the world largest motor manufacturing company, the company got a tremendous success in time of Alfred salon, due to his leadership the company was producing new style and design car every year, and he had given such concept to the company. The other brand of the company is Chevrolet, Pontiac, Buick, and Cadillac. These were the different brand cars which were producing by company that time, and this way there were no other competitors to compete in the company different cars. But with emerging of the japans automakers the company felt threatened, specially the emerging of Toyota Japan, who with great extent disturbed the profitability of the GM, especially in the North American market. In 2001 the sale graph of the GM was in declined trend, because the Toyota had captured the market, this way the GM received loan form American government and Canadian government to support the company in that crises period. During 2009 the company had faced a bankruptcy and had closed several brand and sold out to china based company. Now the company again got his position in market by restructuring and making change in the company. Now the company is again operating business in the core brands in America such as Chevrolet, GMC, Buick, and Cadillac.

In this section we will highlight the reason and forces behind the change in general motor

External Forces

In external forces the GM which was greatly affected by the japans based company Toyota was the emerged competitors in that time, the north America is still the biggest market place for GM where the company sold out in recent year round about 2.9 million and the nearest competitor is Toyota and china based companies, these competitors with great extent disturbed the total profitability of the general motor, and the second external forces which the company faced a huge problem was financial crises which with great extent collapsed the cash flows of the company

Internal Forces.

The another force for change to GM was the high wages cost to employees as the company was paying $74 per hour as compared to Toyota $44 per hour, because GM was an agreement with trade union. And the GM was compelled to run the plant with minimum 80% capacity whether it was needed or not, these things play an important role in the bankruptcy of the company.

Types of Changes

By keeping in view the above discussion the company ultimate decided to bring or make change in the company, so the company decided to bring changes on some areas of the business, these were included, structural change, cost change, process change and cultural change.

Steps in the Change Management Process of General Motor.

While going on change management the GM, the company took some steps to adopt change these are the most recent change which the company had taken.

Cost Cutting.

The first steps which was taken by the GM is about cost cutting, the company has reduced its cost of some brands to maintain the profit level, such as the Saturn and hammer, by keeping the other company cost. Similarly the company also cut pay of employees which was the major problem to company. The company has achieved the target of cost cutting up to 15 billion in recent year.

Cultural Change

The general motor also changed the culture of the company, the GM removed it automotive product board, and automotive strategy up to 8 men board decision making team which were responsible to report directly to CEO. The main objective of such change is to speed up the day to day decision making process. The GM also changed the culture to improve the efficiency of the employees and make accountable and responsible one.

Problems to Change Process

In change management process the GM faced a variety of problems

Problems in Cultural Change The cultural plan was based on top down approach, which ignored totally the involvement of the employees as compared to other companies , some suggested that the company has not down top approach, in which employees feel satisfaction, so this regard the company empowered the employees by introducing in tailoring the down top approach. Rather than merely telling to employees what they do.

Problem with Cost Cutting As the cost cutting has an important place in the change management but it was faced great problem from the agreement of trade union, as the company was an agreement with not lowering the pay of the employees and maintain the capacity level.

Results of the Change Process As we have discussed that the GM had adopted changed previously also but these changes are recently those changes which adopted by the company in the year 2009. The results of he changes are as under.

Result of Cost Cutting The result of cost cutting of GM seems from its employment figure of 98 to 2009, it was reduced from 226000 to 101000 workers, and now the company is concentrating on sale rather than to further cut off, and also the company is deciding to reduce the worked force of the factory from 6oooo to 4oooo. And it will certainly lead to cost saving to the company.

Result of Cultural Change The general motor had also achieved good result from cultural change, and the employees now becoming aware about the responsibility and accountability, as well as the company also empowered the employees to give better productivity.

As we have discussed above that the general motor adopted tow main strategies for change management, recently one was cost cutting strategy for change management and other was cultural change management strategy, the company adopted two other change strategies but these are the most recent, by developing such strategies the company has achieved its market shares in north America again, as the company was threatened by the emerging of competitors in the automakers industry but the company decided to bring changes and now the company again in better position and he again maintained the brand of core products, beside of these the company also achieved the cost benefits by implementing these change strategies in the company.

Q1.Discuss Lewins model and Kotters model for change with reference to GE Motors.-7 marks

Q2.What are the two strategies adopted by GE Motors in order to bring change and gain market share.-8 marks.

Please answer the 7 questions at the end of case. Alibaba Group Initial Public Offering:

A Case Study of Financial Reporting Issues Qing L. Burke Tim V. Eaton Miami University Alibaba Group Initial Public Offering: A Case Study of Financial Reporting Issues ABSTRACT: In September 2014, the Chinese e-commerce giant Alibaba Group Holding Limited issued shares on the New York Stock Exchange, making it the world’s largest initial public offering. This case examines different aspects of the Alibaba Group’s initial public offering, including Alibaba Group’s business model, financial reporting and corporate governance, as well as the macroeconomic, political, and legal environment in which the company operates. In addition, this case will familiarize students with the risks and opportunities for Chinese companies and investors when a Chinese company lists in the U.S. This case is suitable for financial accounting and international accounting courses at the intermediate and advanced levels for undergraduates as well as graduate students. The case is scalable, and instructors can choose from multiple sections of the case and different case questions to tailor the case difficulty to their students’ learning needs. Keywords: Alibaba Group Holding Limited; initial public offering; variable interest entities; equity investment; financial statement analysis. INTRODUCTION On September 19, 2014, Alibaba Group Holding Limited (Alibaba Group), the Chinese e-commerce giant founded in 1999, had an initial public offering (IPO) of American depository shares at $68 per share on the New York Stock Exchange. Based on this offering price, this deal raised $25 billion for Alibaba Group, making it the world’s largest IPO (Barreto 2014) The scope of Alibaba Group’s IPO has drawn particular attention to the risks and opportunities of investing in this company as well as other U.S.-listed Chinese companies. This case will first provide a brief background on Alibaba Group, and then explore important aspects associated with its IPO in the U.S. Corporate Overview Since the launch of Alibaba.com in 1999 by Jack Ma in his apartment in Hangzhou, China, Alibaba Group has established a portfolio of companies operating in wholesale and retail online marketplaces as well as Internet-based businesses offering advertising and marketing services, electronic payments, cloud-based computing, and network services as well as mobile solutions. Alibaba Group has developed an ecosystem around its platform that consists of buyers, sellers, third-party service providers, strategic alliance partners, and investee companies. Table 1 shows important milestones in Alibaba Group’s history (http://www.alibabagroup.com/en/about/history). Important Milestones in Alibaba Group’s History 1999 Alibaba.com is officially launched by its 18 founders, led by Jack Ma, working from Jack Ma’s apartment in Hangzhou. The parent holding company of Alibaba.com, Alibaba Group Holding Limited (Alibaba Group), is established in the Cayman Islands. ? 2000 Alibaba Group raises US$20 million from SoftBank and US$5 million from Goldman Sachs. ? 2002 Alibaba Group becomes profitable. ? 2003 Alibaba Group founds online shopping website Taobao.com ? 2004 Alibaba Group raises US$82 million from a group of venture capital investors. ? 2005 Alibaba Group forms a strategic partnership with Yahoo! in which Yahoo! invests US$1 billion in exchange for 42 percent equity interest in Alibaba Group. ? 2007 Alibaba.com is listed on the Hong Kong Stock Exchange at a price of HK$13.50, raising HK$13 billion (US$1.68 billion). Alibaba Group launches Alimama, a marketing technology platform that offers sellers online marketing services for?both personal computers and mobile devices. ? 2008 Alibaba Group founds Tmall.com, a platform for third-party brands and retailers. ? 2009 Alibaba Cloud Computing is established to handle increasing data management needs. ? 2010 The Alibaba Partnership structure is established. ?Alibaba Group launches AliExpress to enable exporters in China to reach and directly transact with consumers around the world.?Alibaba Group launches the Mobile Taobao app. ? 2012 Alibaba Group privatizes Alibaba.com from the Hong Kong Stock Exchange at a delisting price of HK$13.50.?Alibaba Group repurchases approximately 20 percent of its shares (US$7 billion) from Yahoo! in a restructuring of the companies’ relationship. ? 2013 Alibaba Group abandons its plan to list on the Hong Kong Stock Exchange due to disagreement over shareholder rights. ? 2014 Alibaba Group lists on the New York Stock Exchange. ? Alibaba Group’s revenues are primarily derived from online marketing services, commissions based on gross merchandise volume (i.e., the total value of merchandise sold), as well as fees from the sale of memberships on their wholesale marketplaces.1 It does not engage in direct sales, compete with marketplace merchants, or hold inventory.2 Online marketing services constituted approximately two-thirds of Alibaba Group’s total revenue in fiscal year 2014. The two primary types of online marketing services are pay-per-click advertising services (a.k.a. ‘‘pay-for-performance marketing services’’) and display advertising services, which accounted for 45.3 percent and 7.7 percent of its total revenue in fiscal year 2014, respectively. Pay-per-click is an Internet advertising model in which advertisers pay the website a service fee when the advertisement is clicked. On Alibaba Group’s marketplace, the pay-per-click advertising service fee is determined through an online real-time auction system. Display marketing allows advertisers to place advertisements in particular areas of a web page at fixed prices or prices established by a real-time bidding system during particular periods of time. Alibaba Group’s marketplace requires advertisers to pay for these online marketing services in advance. Commissions based on gross merchandise volume and membership fees accounted for 24.3 percent of Alibaba Group’s total revenue in fiscal year 2014. Revenue arrangements with multiple deliverables (e.g., the sale of membership packages) currently constitute less than 1 percent of Alibaba Group’s revenue. Substantially all of Alibaba Group’s assets and business operations are in China and it derives substantially all of its revenue from China. Given China’s economic growth, political stability, increasing levels of Chinese consumer spending, and protection from foreign competition, Alibaba Group has grown rapidly. In the meantime, its costs have increased each year due to strategic investments and acquisitions to expand its user base and enhance its cloud computing business and other technology products designed to strengthen its ecosystem. Primary Investors—Yahoo! and SoftBank Alibaba Group’s success has already paid dividends to an investor with whom the company has had a long and tumultuous history: Yahoo!. In 2005, Yahoo! invested $1 billion in Alibaba Group in exchange for 46 percent of outstanding common stock. Yahoo! obtained the ability to exercise significant influence over the operating and financial policies of Alibaba Group. At the time the investment was strategically important for Alibaba Group as its subsidiary, Taobao.com, was competing directly with eBay’s Chinese subsidiary. However, after this investment, Alibaba Group and Yahoo! later developed a rocky relationship over issues including business operations, a spin-off of Alibaba’s payment business, Alipay, and board of director selections (Gough 2013). On September 18, 2012, Alibaba Group and Yahoo! entered into a share repurchase agreement pursuant to which Alibaba Group repurchased some of its shares from Yahoo!. Yahoo! received $13.54 per share, or $7.1 billion in total consideration. The sale of shares resulted in a pre-tax gain of $4.6 billion for Yahoo! in 2012. Yahoo!’s ownership interest was reduced to approximately 24 percent. Although Yahoo! retained some ability to exercise significant influence over Alibaba Group, the share repurchase agreement strengthened Alibaba Group’s management control and paved the way for its IPO. Another primary investor of Alibaba Group is SoftBank Group Corp, a Japanese telecommunications company and the controlling shareholder of Sprint. In 2000, SoftBank made its first investment of $20 million in Alibaba Group. In 2003, it made a series of further investments totaling $80 million. After Alibaba Group’s IPO in September 2014, during which the pre-IPO shareholders (e.g., SoftBank, Yahoo!, and Ma) sold a portion of their shares, SoftBank owned approximately 32 percent, Yahoo! owned approximately 15 percent, and Ma owned approximately 8 percent of shares.3 After the IPO, Yahoo! did not have the ability to exercise significant influence over Alibaba Group, nor could Yahoo! sell its equity stake in 2014 due to a lockup agreement. Variable Interest Entity (VIE) Structure Alibaba Group’s IPO carried a significant risk; it is essentially a Chinese company operating in China under Chinese law, which is very different from U.S. law. Private companies in China have difficulty accessing sufficient capital domestically and look to foreign investors that are keen to share in China’s economic growth for financing. However, foreign ownership of Chinese companies is regulated in China, and the Chinese government requires companies seeking to list overseas to obtain permission. State-owned enterprises, like PetroChina Company Limited listed on the New York Stock Exchange, have obtained this permission, but it is extremely difficult for a private company to obtain permission. In addition, the Chinese government regulates foreign investment through the Catalogue for the Guidance of Foreign Investment Industries (Ministry of Commerce 2011), which classifies industry sectors into encouraged, restricted, or prohibited categories. Certain essential Internet business activities, such as operating a website or providing Internet content, are in an industry sector for which foreign investment is restricted or prohibited. To bypass these restrictions, solutions were created to allow foreign investors to invest in Chinese private Internet companies. First, Chinese private Internet companies are split into an offshore holding company outside China, typically in the Cayman Islands or similar tax havens, and onshore entities in China. Foreign investors can then buy shares in the foreign-listed offshore holding company of the onshore entities. Onshore businesses in China hold licenses required to operate in China as well as other assets. In Alibaba Group’s case, Alibaba Group is a Cayman Islands holding company established in 1999, and it conducts business in China through onshore Chinese companies. Alibaba Group’s foreign shareholders own a piece of the Cayman Islands holding company. Next, Chinese private Internet companies’ onshore entities in China are further separated into two parts: (1) wholly foreign-owned enterprises and (2) variable interest entities (VIEs). With respect to the former, a wholly foreign-owned enterprise conducts business activities that are open to foreign investment and is 100 percent owned by its offshore holding company. A wholly foreign-owned enterprise is routinely used by multinational companies to operate in China, and also used by overseas-listed Chinese private companies that do not use VIEs. Alibaba Group holds 83 percent of its total assets in and generates 88 percent of its revenues from its wholly foreign-owned enterprises that provide technology solutions and other services to customers. Because Alibaba Group holds 100 percent ownership interest in its wholly foreign-owned enterprises, it consolidates these enterprises in its financial statements. With respect to VIEs, businesses that are restricted or prohibited from foreign investment are put into Chinese entities owned by Chinese citizens. The challenge then becomes how to include the restricted or prohibited part of the business in the offshore holding company. Solving this challenge was an essential requirement for an IPO in the U.S. Overcoming this challenge required the creative utilization of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 810-10, Consolidation of Variable Interest Entities (FASB 2009b) (Interpretation No. 46 [FASB 2003a] and subsequent amendments including Interpretation No. 46(R) [FASB 2003b] and Statement No. 167 [FASB 2009a]). The FASB issued Interpretation No. 46 in 2003 to expand previous accounting guidance that addresses when a company should consolidate another entity in its financial statements. The previous standards focused solely on ownership: one company consolidated another entity in its financial statements if it controlled the entity through a majority ownership interest or voting rights. Many companies abused the previous standards by creating special purpose entities to hold debt. Since these companies were structured to own less than 50 percent of the shares of the special purpose entity, they did not consolidate the entity, thus keeping the debt off their balance sheet. Enron Corporation made extensive use of this accounting loophole, and its collapse led to the establishment of Interpretation No. 46. Interpretation No. 46 expands the entities that are subject to consolidation by requiring a reporting entity to consolidate any entity in which it has a controlling financial interest, regardless of whether the controlling financial interest is through equity ownership, through contractual arrangements, etc. The FASB coined the term ‘‘variable interest entity’’ for entities to be consolidated under Interpretation No. 46. An unexpected consequence of Interpretation No. 46 is that it enabled Chinese private companies in restricted or prohibited industry sectors to list their shares in the U.S. (Gillis 2012, 2014). Alibaba Group’s VIEs, which are incorporated in China and 100 percent owned by Chinese citizens, hold the Internet content provider licenses required to operate websites in China. Alibaba Group’s onshore wholly foreign-owned enterprises enter into a series of contractual arrangements that provide these enterprises with controlling financial interests in VIEs. Specifically, these contracts (1) give wholly foreign-owned enterprises the power to direct the activities of VIEs that most significantly impact the entity’s economic performance, and (2) enable wholly foreign-owned enterprises to receive benefits or to absorb the losses from the VIEs that could potentially be significant to the VIEs. Ultimately, these complex contractual arrangements ensure that the economic benefits of the VIEs flow to Alibaba Group, which is the owner of the wholly foreign- owned enterprises. In accordance with ASC 810-10, Alibaba Group includes the financial results of its VIEs in its consolidated financial statements. Approximately 12 percent of Alibaba Group’s consolidated revenue and 17 percent of consolidated assets are attributable to its VIEs. Figure 1 is a simplified illustration of the ownership structure and contractual arrangements for Alibaba Group’s VIEs. Alibaba Group acknowledged that if the Chinese government deems that the contractual arrangements in relation to VIEs violate Chinese law, then the company could be forced to relinquish its interests in those operations. However, given the billions of dollars of foreign investment in dozens of Chinese companies through VIEs, Alibaba Group’s executives believe the Chinese government would not endanger these property rights. Further, as Alibaba Group’s IPO listing is the largest in the world, it would be a shock to global capital markets if China’s leaders undermine the VIE arrangement. U.S. legal experts also argue that if Alibaba Group were to ever declare bankruptcy, foreign investors might not be able to seize assets in the VIEs because the VIE contractual agreements may prove unenforceable in Chinese courts where the rule of law remains rudimentary. The U.S.-China Economic and Security Review Commission, set up by Congress, warned against these arrangements in a June 2014 report: ‘‘This intricate ruse is a way of making the business appear to be Chinese-owned to Chinese regulators while claiming to be a foreign-owned business to foreign investors. Neither claim is technically true, and the arrangement is highly risky and potentially illegal in China’’ (U.S.-China Economic and Security Review Commission 2014, 4). Partnership Structure Before seeking an IPO in the U.S., Alibaba Group initially approached the Hong Kong Stock Exchange despite the Exchange’s rules requiring equal shareholder rights. The Exchange’s rules were problematic because in 2013 Alibaba Group adopted an unusual partnership structure that allows the Alibaba Partnership team to nominate a simple majority of its board of directors. The partnership structure concentrates significant control within the 30-member partnership and limits outside shareholders’ ability to influence corporate matters. However, corporate governance structures with unequal shareholder rights are not uncommon in the U.S. Many U.S. technology companies, such as Alphabet Inc., Facebook, and LinkedIn, all have multiple share class structures that reject the one-share-one-vote principle (Moroney 2014). Thus, after the Hong Kong Stock Exchange refused to make an exception, Alibaba Group moved forward with a listing on the New York Stock Exchange. Lockup Agreement Alibaba Group sold approximately 14.8 percent of its ordinary shares during the IPO in September 2014. After the completion of the IPO, remaining shares held by its early investors (including Yahoo!, SoftBank, and Alibaba Group’s directors, executives, and other employees) were subject to lockup agreements under which these shares could not be sold on the stock market for predetermined periods (e.g., 90 days, 180 days, or one year). Yahoo!, SoftBank, and Jack Ma agreed upon a one-year lockup on their holdings. After the lockup expiration in September 2015, the remaining Alibaba Group shares became available for sale in the public market. Financial Information Alibaba Group’s consolidated income statements, balance sheets, statements of cash flows, and statements of changes in shareholders’ equity for the years ended March 31, 2012, 2013, and 2014 are presented on pages F-3 through F-11 in its IPO Prospectus (Form 424B4) dated September 18, 2014 (available at: http://www.sec.gov/Archives/edgar/data/1577552/ 000119312514347620/d709111d424b4.htm). These financial statements were prepared in accordance with U.S. GAAP.4 The reporting currency of Alibaba Group is the Chinese currency renminbi (RMB). The financial statements for the year ended March 31, 2014 also contain translations of RMB into U.S. dollars. All translations of RMB into U.S. dollars were made at RMB6.2036-to-US$1, the exchange rate set forth by the Federal Reserve Board on June 30, 2014. CASE QUESTIONS

Q1. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, now part of ASC 606 (FASB 2014a). One of the most significant revenue sources for Alibaba Group is revenue from pay-per-click advertising services. Apply the five steps in the revenue recognition model of ASC 606 to account for revenue from pay-per-click advertising services. Prepare the necessary journal entries. (Ignore any transaction amounts in the journal entries.)

Q2. Non-U.S. companies, such as Alibaba Group, generally use American depository receipts to establish a trading presence on U.S. stock exchanges.?

a. The terms ‘‘American depository receipt (ADR)’’ and ‘‘American depository share (ADS)’’ are often used interchangeably. What is an ADR and what is an ADS??

b. Explain why U.S. stock exchanges have attracted non-U.S. companies’ share listings. Provide at least two reasons.

Q3.As a U.S.-listed foreign company, which must file financial reports with the SEC, Alibaba Group had the choice between U.S. GAAP and IFRS. Although its subsidiaries had once prepared financial statements under IFRS, Alibaba Group decided to prepare its financial statements under U.S. GAAP.?

a. What are the pros and cons for Alibaba Group preparing its financial statements in accordance with U.S. GAAP instead of IFRS??

b. Does the adoption of high-quality accounting standards such as U.S. GAAP or IFRS ensure high-quality financial reporting by companies on a global scale? Why or why not??

Q4. Using the information from Alibaba Group’s Consolidated Income Statements in its IPO Prospectus, calculate its gross profit margin ratio and net profit margin ratio for the year ended March 31, 2014.?

Q5. Compare Alibaba Group’s gross profit margin ratio and net profit margin ratio that you calculated in Question 4 with the following ratios from Amazon, eBay, and JD.com for the year ended December 31, 2013. Gross Profit Margin Ratio Net Profit Margin Ratio Amazon 27.23% 0.37% eBay 68.62% 17.80% JD.com 9.87% -0.07%

a. From the perspective of their business models, provide explanations for the differences in gross profit margin ratios among Alibaba Group, Amazon, eBay, and JD.com.

b. Based on the net profit margin ratios of Alibaba Group, Amazon, eBay, and JD.com, determine which company is the most profitable and which is the least profitable. Provide possible explanations for these differences in profitability.

Q6. Alibaba Group’s Consolidated Balance Sheets in its IPO Prospectus report that its retained earnings went from a positive balance in the year ended March 31, 2012 to a large negative balance in the year ended March 31, 2013. a. Generally speaking, what are the factors that impact a company’s retained earnings?? b. Using the information from Alibaba Group’s Consolidated Financial Statements in its IPO Prospectus, provide possible explanations for factors that contributed to the wild fluctuations in retained earnings and whether this should cause an investor concern.?

Q7. Answer the following questions related to the Statement of Cash Flows:

a. Interpret Alibaba Group’s performance and financial activities for the fiscal year ended March31,2014 using cashflows from operating, investing, and financing activities from its Consolidated Statements of Cash Flows presented in its IPO Prospectus.

b. Generally speaking, how would a company’s IPO directly or indirectly impact its cash flows from operating, investing, and financing activities? ?

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,450,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below: 2018 2019 Costs incurred during the year $ 336,000 $ 1,870,000 Estimated costs to complete as of 12/31 1,344,000 0 Billings during the year 446,000 1,710,000 Cash collections during the year 268,000 1,795,000 Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion

Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time.

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion.

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

Q 3 Abdelaziz Company produces 3 types of products. During the year the joint costs of processing the 3 products were $350,000.

             Production and sales value information were as follows:

                                             Sales Value

Product         Units produced   at Split-Off          Separable Costs                      Selling Price

Product A            400,000       $10 per unit           $6.00 per unit $40 per unit

Product B            300,000        $9 per unit           $4.00 per unit $28per unit

Product C            500,000        $6 per unit           $3.00 per unit $18 per unit

a.   Allocate the joint costs using the physical output method.

b.   Allocate the joint costs using the net realizable value method.

c.    Allocate the joint costs using sales value at split-off point method.

Read the case and then answer the following questions.

Surface tension
The tech giant’s decision to make its own tablet computer is a bold gamble

“WITHIN five years, I predict it will be the most popular form of PC sold in America.” When Bill Gates spoke at a trade show in 2002, the then chairman of Microsoft left nobody in doubt that what his firm called the “tablet PC” would one day take the world of personal computing by storm. His sense that an upheaval was coming was spot on, but his timing wasn’t. Only when Apple launched its wildly popular iPad in 2010 did computing tablets at last take off. Now Microsoft is scrambling to gain a foothold in one of the hottest markets in the IT industry.

On June 18th 2012, Microsoft unveiled Surface, a tablet that will bear Microsoft’s name and is supposed to be a showcase for its new Windows 8 operating system, due to be rolled out in the autumn. The new device will be available in two models: a basic version with a processor designed by ARM (which also powers the iPad) and a souped-up one with an Intel chip for business

users. Both models boast some innovative features, notably a built-in stand and a cover that doubles as a keyboard.

Microsoft’s decision to make its own tablet is another sign of how much the company is being buffeted by shifts that are transforming the world of IT. Just as momentous as the rise of social networking is the rapid growth of mobile computing (see Figure 1). This has softened sales of Windows-based PCs, the foundation of Microsoft’s fortunes. And it has boosted rivals such as Apple and Google, whose respective mobile operating systems, iOS and Android, power most smartphones and tablets.

A related threat to Microsoft’s business is the “consumerisation” of IT. Growing numbers of employees are now demanding to use their own phones and tablets at work. In many cases, companies are caving in. As a result, iPads and Android-based tablets are spreading rapidly through offices and factories – the heartland of Windows-based PCs.

Critics point out that Microsoft’s track record in hardware is mixed. Although it has produced hits such as the Xbox game console, it has also had some deeply embarrassing misses, including Zune, a portable music player that has failed to rival Apple’s iPod.

Microsoft entered into video games and game consoles in 2001. The launch of Xbox 360 in 2005 has proved extraordinary and also particularly interesting. The rationale behind its market entry into the video games industry comes with a good reason. It was designed primarily to keep their potential competitor, Sony, in check. Although Sony operated in a different industry, Microsoft recognized that Sony could emerge as its rival.

Microsoft’s Zune was launched in November 2006 and Microsoft believed that it could compete with the Apple iPod, which had been in the market since 2001 and dominated the multimedia player and music download business around the world. The Wall Street Journal reported that revenue from the Zune player was $85 million during the 2008 holiday season compared to $185 million in the same period in 2007. Apple’s iPod revenue during the last quarter of 2008 was $3.37 billion. Microsoft, which had access to as much hardware development expertise as any company in the world and the capital to support a massive marketing budget for new products, failed completely in its attempt to get a large part of the iPod market.

For the Surface, analysts worried that consumers may be confused by the two versions of the tablet, which will have very different price points. Microsoft has just indicated that the expensive model is likely to cost the same as thin laptops, which sells for around $1,000, whereas the cheaper version will be priced to compete with comparative ARM-based tablets, probably at around $500. Comparatively, the cheapest iPad with a high- resolution screen costs $499.

Another concern is that by making its own device, Microsoft risks alienating other firms that are working on Windows 8 tablets, such as Dell and HP. But the company’s main aim may be to show how its new operating system can best be used, thus setting a standard that other device makers will strive to exceed – and perhaps produce a Windows 8 iPad-killer.

If that is indeed the aim, Microsoft appears to have missed a key lesson from Apple. One reason why the iPad has been so successful is that it blends beautiful hardware with an amazing range of software. Microsoft has attractive assets, in particular Skype (an internet calling service), its alliance with Barnes & Noble (a big online bookseller) and its Xbox ecosystem. Yet other than the firm’s Office suite of productivity tools, none of these was shown at this week’s launch. “Microsoft has missed an opportunity to highlight things that can inspire people,” said Sarah Rotman Epps of Forrester, a research firm. Perhaps when its tablet hits the market later this year, the company will have found ways to bring more of these to the surface.

Microsoft has reaffirmed the strategy of having its own hardware devices recently. In September 2013, Microsoft agreed to acquire the handset business of Nokia for about US$ 7.2 billion. Thus, Microsoft will not only be making tablets but mobile phones as well. In a letter to all Microsoft employees, CEO Steve Ballmer, reiterated that “The form and delivery of our value will shift to devices and services versus packaged software.” In November, Microsoft launched the second generation of the tablets and an updated version of Windows. The device strategy is here to stay.

Unlike earlier ventures into devices, like the Zune music player and the game console Xbox, the motivation for getting into the hardware side of business in relation to mobile phones and tablets seems to be the strengthening of the Windows platform but the opening up of a new source of revenue is still in doubt.

Question A :

Explain the differences between diversification and vertical integration strategies in relation to the scope of business.

Question B :

Would you classify the following strategic moves of Microsoft as diversification or vertical integration strategy? Why?
A) Launching of the portable music player Zune
B) Launching of the Xbox game console
C) Launching of the Surface tablet.

Question C :

What are the major potential benefits and risks of Microsoft’s strategic shift from selling ‘packaged software’ (i.e. Windows operating system) to launching ‘devices and services’ (i.e. tablets and mobile phones)?