Krispy Kreme's Business Model and Practices

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 per share from continuing operations in comparison to its previous announcements. The CEO attributed this to amassing consumer preference in low-carbohydrate diets, which had been adversely impacting the level of demand across all flour-based food categories. Moreover, the company commenced closing retail stores that were underperforming as expected and thereby filing for bankruptcy. It was ascertained that the company had conducted unethical practices encompassing the buyback of numerous of its doughnut franchises (De Celestino, 2007).
The company's senior executives employed aggressive accounting practices to escalate the earnings from purchasing the franchises. Furthermore, this procurement generated intangible assets in its balance sheets due to reacquired rights, yet the company failed to undertake amortization (De Celestino, 2007). Imperatively, amortization, which is the right accounting practices, would have substantially diminished Krispy Kreme's earnings. Also, unethical business practices implemented by the company included failure to reveal that some of the persons that sold the franchises included a chairman of the board of directors, a member of the board, a former chief executive of the company, and also an ex-wife to the CEO (De Celestino, 2007).
Summarize the facts presented 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