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Describe the five steps of the revenue recognition model. Specifically, provide an explanation and example as to what signifies a performance obligation.
The revenue recognition model's five steps include the following:
1. Identify the contracts with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. In the contract, attribute the transaction price to the performance requirements
5. Recognize revenue when the entity fulfills a performance requirement
In simple terms, a performance obligation refers to what the buyer is paying the seller to deliver concerning the contract agreement. Significantly, the seller must pinpoint what has been promised and ascertain whether a promise or several promises signify one or more performance obligations to the consumer. In any given contract, the seller is expected to satisfy all of the performance obligations stipulated to avoid a breach of contract
Provide an overview of Krispy Kreme's business model and summarize the company's unethical accounting and business practices as detailed in "Krispy Kreme, Sarbanes-Oxley, and Corporate Greed." Specifically, report on the company's channel stuffing business procedures
Krispy Kreme's business model encompasses the conventional brick-and-mortar business structure. For the most part, the company sells its doughnuts in the over 350 retail stores in operation. Imperatively, outside of these retail stores, the company conducts the distribution of its doughnuts using multiple channels.
There are unethical accounting practices and business practices, precisely about the channel stuffing business procedures. In May 2004, despite having remarkable financial performance, the CEO of Krispy Kreme announced that there would be a 10 percent decline of the expected diluted earnings...…in Krispy Kreme's stock value as detailed in "A Hole in Krispy Kreme's Stock."
The company reported and proclaimed its first loss since its IPO. This was linked to writing off the cost of closing down a bread firm that it had initially purchased. Furthermore, the company's CEO indicated that the company would solely open 100 retail stores in the financial year, concerning a forecasted number of 120 retail stores. As a result, the company's shares experienced a 60 percent decline from $50 in the previous year to $20 (Serwer, 2004).
Explain the relationship between the company's unethical accounting practices and the decrease in its stock value.
Unethical accounting practices and actions can hurt investor trust and confidence and harm its stock price. This is perceptible in the company's 60 percent decline in share value.…
References
De Celestino, C. M. (2007). Krispy Kreme, Sarbanes-Oxley, and Corporate Greed. University of Miami Business Law Review 15 (2): 225 – 244.
Serwer, A. (2004). A Hole in Krispy Kreme's Story. Fortune International (Europe), 149(10), 23
Krispy Kreme Doughnuts is a specialty retailer of doughnuts, owning and franchising stores where it makes and sells over twenty varieties of doughnuts, including its famous Hot Original Glazed variety (Company profile, Yahoo! Finance). As of February 1, 2004, there were 357 Krispy Kreme factory stores in operation, of which 338 were located in the United States. It also uses third-party retailers to distribute its product. To grow its business,
Krispy Kreme Corporation is primarily known for the quality of its donuts. Since the company's inception in 1937, it has grown to be for many customers the best amongst its competitors. The company thus has many strengths, not least of which is its sustained popularity among customers, and the effectiveness of word of mouth advertising. Below is a "SWOT" analysis, identifying strengths, weaknesses, opportunities and threats to Krispy Kreme. This
There is abundant opportunity in the western U.S. that KKD has yet to address. Each aspect of the strategy plan is now addressed by functional area: Market Development Over the next three years, KKD needs to first concentrate on competing more effectively in those regional markets where Dunkin' Donuts to this point has dominated the sale of donuts and related food and beverage items. This must begin with a build-out of
There has been increase in the number of franchise stores that are operating, which generate critically needed income for the company. Currently, the company is also involved in a credit agreement that contains provisions that, among other requirements, restrict the payment of dividends and requires the company to maintain compliance with certain covenants, including the maintenance of certain financial ratios (Management Discussion and Analysis (MD&a) of 10-K for 2007: 36).
Advertising for TITB is placed in high traffic, high consumer areas (subways, bus stops, etc.) Evaluation Why KK? Taste, freshness, and thinking of the office? KK looks better than competitors. Choice Something special as treat for oneself or office mates Don't just purchase one. Alleviates guilt and adds emotion to purchase Evaluation What do people think? Encourages multiple purchases. Allows for multiple opinions and feedback loop. Critique and Recommendations Krispy Kreme's advertising campaign of a combination of making it a dozen and thinking inside
Krispy Kreme Industry Environment Krispy Kreme (KK) operates in two industries, both of which are highly competitive. The QSR side of the business has low switching costs, moderate brand loyalty, and at the local level especially there are few barriers to entry. At the national level, barriers to entry are much higher, but intensity of rivalry, especially between Krispy Kreme and Dunkin Donuts, is high. This affects pricing power, though KK has