Chapter 4 BLOG

http://www.canada.com/edmontonjournal/news/business/story.html?id=437be4c2-ef54-4cd6-8f0b-9d4b6895bfac



Summary:

This is not a recent article. it is an article back in 2007. CV technologies had to restate their earnings to account for reported revenue that will not materialize. The financial reports for all of the 2006 and first quarter of fiscal 2007 had to be restated due to disappointing sales. The estimated sales at first, was $8.6 million, but the actual sales were $1.5 million to $2.5 million. The revenue for the third quarter had to be reduced 11 to 12 percent and the fourth quarter revenue had to be reduced by 6 to 8 percent. After this incident the company changed its reporting policy so revenue from products with a right of return will be deferred.

Connection:

The connection that I have made with this article is revenue recognition. CV Technologies had to restate their earnings because their earning reported don’t match the earning they had actually generated. CV technologies pretty much broke the three criteria of Revenue Recognition. Firstly, the revenue that they stated could not be recognized because it is not earned. Secondly, the amount could not be measured because the amount that they had stated is just an estimate. Thirdly, they aren’t sure that amount stated can be collected because it is just an estimate. CV Technologies stated its revenue before it is even generated; therefore, their financial statements are overstated.

Reflection:

CV Technologies should not have stated the estimated earnings in the first place because they broke the accounting rule in and they have to waste extra time restating all their financial statements. This caused unnecessary media for the company and caused the image of the company to look bad. I am glad that they decided to change their policy after this incident because it demonstrated that they learned their lesson. This would also do well for the company because they weren’t following the criteria of revenue recognition.

Chapter 3

http://www.cbc.ca/money/story/2010/01/15/consumer-corporate-haiti-donations.html



Summary:
A natural disaster had struck Haiti about a week ago causing thousands and thousands of deaths and thousands buried underground. Canadian Businesses have committed millions of dollars in aid for victims of the earthquakes. Companies like BMO, Roger, National Bank of Canada, TD Bank, IKEA, etc have donated money to help aid the situation. Credit Card Company such as Visa, MasterCard and American Express will suspend interchange fees on Haitian relief donations to certain organizations. Western Union and Money Gram have suspended fees on transactions for charitable donations to the relief effort. Air Transat has temporarily suspended its weekly flight to Haiti because the airport is unable to receive it.
Connection:
The connection I have made with this article to chapter 3 is that the donation that the companies are donating to aid the earthquake are consider infrequent event. Infrequent events are a special thing that is infrequent and unusual. It is always recorded in a separate section in the multi-steps income statement. The companies that have donated money to aid the Haiti earthquake crisis should record their donations during the “Prepare Financial Statements” section of the accounting cycle. The donations should be recorded in the infrequent event section of the multi-steps income statements. This will show that the company had done something with their money, instead of not knowing where the money went. Natural disaster like this does not happen often; therefore, donations like from these companies should be considered infrequent events.
Reflections:
The Haiti earthquake was a sad and unpredictable event. It is nice to see that people from all around the world are doing something to help out the ones who are needed. Many large companies had donated money to aid the crisis. Credit card companies are willing to earn less money by suspending transaction fees for charitable donations. Even people who are not from big companies are contributing to aid the people in Haiti. It was an event that devastated the whole world. The amounts of people who died and buried are increasing.

Chapter 1 ReDO

http://www.cbc.ca/money/story/2009/11/18/manulife-share-issue.html



Summary:

The Toronto based insurer Manulife Financial Corp. are trying to position them for long term by issuing common shares. By issuing the common shares Manulife will raise over $2.5 Billion. The CEO added that this achieves “the fortress level of capital necessary” to buffer any further economic downturns. The company intends to retire approximately $1 billion in debt and it also can use the funds for acquisitions. The recession has cause Manulife to build up their balance sheet.

Connection:

This article revolves around issuing out common shares in order to obtain cash for investment, repaying back debts and building up balance sheet. This connects with company activities, which is a major category in Chapter 1 of the financial accounting textbook. Issuing shares in the financial accounting book is described as a financial activity because when a company sell out it shares to do something, it is consider as financing activity. The CEO stated that they are planning to use $1 billion collected to repay the company’s debt;therefore, this connects with the company activities known as “financing activities”. The CEO did state that part of the money might be used for possible investment, so it could also fall into the investing activities section if the investment happens.


Reflection:

This is a smart plan for Manulife Financial Corp. because by issuing shares, they would have enough money to repay its debt or most of its debt. There will also be a good sum of money left for investing activities after they spend $1 billion on repaying their debts. With the money left over they will be able to invest in something to expand their company or to earn more profit. This creates a double win situation; therefore, issuing out shares is a good and efficient plan to bring the company back up. By issuing shares, it will make Manulife become a public company and with the money they can possibly collect would build up their balance sheet because their equity and assets would increase. I think they learned a lesson on what happened with Wall St., so that is why they want to make the company public. Even though that this may be a good plan, but there is a problem. The economy right now may look like it's turning around, but will they be able to raise that much money?

Chapter 2

http://www.cbc.ca/money/story/2009/10/12/aig-sale-primus.html

Summary:

American International Group, the huge insurer agreed to sell its Taiwan unit Nan Shan to an investor group led by Primus Financial (a Hong Kong based Financial services company) for $2.15 billion US. American International Group had to sell Nan Shan because they were bailed out by the U.S. government. The bailout package is worth up to $182.5 billion U.S. and in exchange, the U.S. government gets 80% ownership of the insurer. In order to repay the government aid, AIG had to sell its assets; therefore, selling Nan Shan was its only option.

Connection:

This is not a transaction that you would find in a small business, but it does relate to some of the transaction described in Chapter 2. This transaction is similar to the “purchase of land” transaction described in this chapter. During this transaction, Primus ( the company that bought Nan Shan ) would have to decrease their cash account because they had bought something. They would also have to increase their Land account (or purchase account) because of the purchase of Nan Shan. On the other hand AIG sold Nan Shan because they want to repay the government back; therefore, a possible transaction may be the decrease of AIG’s cash account and accounts payable account.

Reflection:

This was a huge and hard decision made by the American International Group. They had to sacrifice their assets (Nan Shan) in order to pay the U.S. government back. In my opinion, I think this was the right decision because in order to lower the debts owe, AIG needs to sell off some of their assets to cover their debts. Even though the cash received was small amount compare to the amount they owe, it is still better paying back a small amount instead of not paying back at all. Hopefully the economy would turn around in the future and AIG would be able to pay off its debt without selling its assets.

Financial Accounting 12- Chapter 1

http://www.cbc.ca/money/story/2009/09/15/airline-losses-mount.html

Summary:

The recent article I read compares the financial situations of the airline industry after 9/11 and the current recession. It was found that the airline industry is suffered more during the recession than it did in the aftermath of 9/11. The financial lost of 2008-2009 was $27.8 billion, which is greater than the lost of $24.3 billion in 2001-2002. This airline industry is expected to fall by another 15% this year, which puts this financial crisis a larger impact than 9/11. The agency also blame for the increase in fuel prices.

Connection:

The connection that I had made between this article and chapter 1 is the importance of financial analysis. By analyzing the financial statements, it can determine where the company stands and whether it is making a profit or not. This can also forecast financial decision, so they can make good and sound management. With good analysis, the airline industry can make good decisions without taking big risk. With good analysis, businesses may be able to find trends on why they are losing money instead of making a profit.

Reflection:

During the time of financial crisis, I do not find that the airline industry losing money abnormal. What surprised the most in this article is that the airline industry did much worst than they did during 9/11. The amount of money that they lost is shocking. I knew that the airline was doing poorly, but not to this extent. I think people of this industry should find away to fix this problem before anymore money is lost.