Chapter 1, Introductory Cases Dublin Small Animal Clinic, Inc. 1 page; introductory



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Sandretto, June 2, 2010

Synopses: Cases in Financial Reporting

Chapter 1, Introductory Cases


1. Dublin Small Animal Clinic, Inc.

1 page; introductory

Accounting cycle

Journal entries

Income statement

Balance sheet


This brief case covers the accounting cycle for a start-up veterinarian practice. The first section includes only cash transactions; the second section includes accruals. Students make simple journal entries and then prepare an income statement and balance sheet. The case includes an Excel tutorial that lets students click buttons to make journal entries. As a journal entry is made, the program automatically updates the income statement and balance sheet. The tutorial also includes detailed explanations for the accounting process and for each journal entry. This case is a good introduction to financial accounting for first-year MBA or Executive MBA students.

Best uses:


First-year MBA/Executive MBA financial accounting

2.Verona Springs Mineral Water

2 pages; introductory

Accounting cycle

Journal entries

Income statement

Balance sheet

Statement of cash flows


This case covers the accounting cycle for a start-up water bottling firm. It is similar to Dublin Small Animal Clinic, but the Excel tutorial also includes a chart of accounts and an integrated statement of cash flows that is updated as the balance sheet and income statement are updated. This case is a good follow-up to Dublin Small Animal Clinic to reinforce the concepts behind double entry bookkeeping, journal entries, the accounting cycle, and financial statements.

Best uses:


First-year MBA/Executive MBA financial accounting

3.Holton-Central Holdings, Inc.

2 pages; intermediate

Accounting cycle

Journal entries

Income statement

Balance sheet

Inventory journal entries


Holton-Central Holdings covers the accounting cycle for a manufacturing firm acquired out of bankruptcy. It is more complicated than Dublin Small Animal Clinic or Verona Springs Mineral Water because it is an existing company, covers journal entries for raw material, work-in-process, and finished goods inventory, and includes a number of additional accounting topics. The case is excellent as a review and expansion of the material covered in those two introductory cases.

Best uses:


Undergraduate financial accounting, either as an introduction or as a review

First-year MBA/Executive MBA financial accounting



4.Chang Medical Electronics

2 pages; introductory

Bond valuation

Zero-coupon bonds

Bond refinancing


A private equity partner evaluates three possible bond issues that can be used to acquire a privately held firm; the case includes details of each bond issue. The case can be used to cover: (a) the basics of bond pricing, bond yields, zero-coupon bonds, and bond refinancing; (b) accounting for issued bonds, including the effective interest method, or; a combination of the two. This is an introductory bond case that can be used to develop a basic understanding of bonds prior to covering the topic in more detail in cases such as Sirius XM Radio (bond issue combined with preferred stock to avoid bankruptcy—Chapter 3); Harley-Davidson (A) (rapidly increasing long-term debt when the securitization market collapsed in early 2008—Chapter 5), or; Knowles Electronics (private equity acquisition with equity and substantial debt—Chapter 6).

Best uses:


Undergraduate intermediate accounting

First-year MBA/Executive MBA financial accounting


Use with:


Discounted Cash Flows and the Time Value of Money (Chapter 7)

Note on Bonds (Chapter 7)

Brief Excel Case: Fixed Income Securities (Bonds) (Chapter 8)

5.Janet O’Brien

4 pages; introductory

Cost-based reimbursement

Need for rules

Need for auditing


I often pass this case out the first day of class to get students comfortable talking in class. The case covers cost-based Medicaid nursing home reimbursements, which are managed by individual states but funded about equally by each state and the federal government. In the state in which the case is situated, there were few rules about allowable costs and the Governor did not believe the state should interfere with private enterprise. The state had not audited nursing homes for seven or eight years. Over time, the nursing homes became increasingly aggressive in billing the state for high and possibly unallowable costs. Nursing homes billed the state and were reimbursed for items such as educational trips to Hawaii, house boats, mobile homes, high-end automobiles (Mercedes, BMW, and Rolls Royce), high salaries for relatives, and high payments to relatives for items such as lease and service contracts.

The case is easy to understand and most students participate in the discussion. It can be used to discuss why we have accounting rules and audits. It can also be used to discuss why cost-based reimbursement is so complex and why contracts between a governmental unit and private enterprise are so difficult to control; thus leading to an understanding of why alleged fraud is so common. The case takes 10 minutes to read and can be used for a 30-90 minute discussion.


Best uses:


Ethics

Undergraduate intermediate accounting

Undergraduate managerial or cost accounting

First-year MBA/Executive MBA financial or managerial accounting

Executive education

6.Big Cat HPV LLC

24 pages; intermediate

Startups

Financial statements

Product pricing/product features

Competitive/strategic analysis

Product costs

Production control

General management


This case covers the first ten years of operations for a startup recumbent tricycle manufacturer, Big Cat HPV LLC. The case follows Paulo Camasmie and explores the wide range of business issues he experienced when he moved from Brazil to the U.S. in 2000 to start his own firm building recumbent tricycles. As of 2010, Big Cat was the world’s largest recumbent tricycle manufacturer having just introduced its first recumbent bicycle, which was an immediate success. The issues discussed include distribution, marketing, sales, product design, production control, cost control, product features, and competitive analysis. All of that can be integrated with the firm’s actual income statements from 2000 through 2007 (later years are omitted for confidentiality).

The case can be used in a wide range of courses. I have taught it in both managerial and financial accounting courses but it can be used in general management, production, marketing, or strategy/policy courses because it covers everything Paulo considered important for his firm during the first ten years of the firm’s operations.

A primary issue is shipping costs. Recumbent tricycles occupy a large amount of shipping space per dollar of production cost; recumbent bicycles occupy less space per dollar of production cost. The case also includes enough cost information that students can evaluate whether Paulo can compete with low-cost producers from Taiwan in 2010, and possibly even lower cost producers from China within a few years.

The case does not include balance sheets, but students can prepare estimated balance sheets based on information in the case. They can also evaluate Big Cat’s prospects for the future.


Best uses:


Undergraduate managerial or cost accounting

First-year MBA/Executive MBA financial or managerial accounting

Executive education

Valuation

A wide range of other MBA courses



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