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Due 2/25/2021 by 10pm eastern time

 

The purpose of this assignment is to apply the accounting revenue recognition concepts in a case study.

One of the most common methods to manipulate revenue is through a strategy called channel stuffing. Refer to the “Krispy Kreme, Sarbanes-Oxley, and Corporate Greed” and the “A Hole in Krispy Kreme’s Story,” located in the study materials, and summarize the company’s unethical accounting practices and the impact on its stock price. Provide a 500-750 word memo to your supervisor summarizing and analyzing the Krispy Kreme transactions and their impact on financial reporting and stock value. You must address the following items in your memo:

  1. Describe the five steps of the revenue recognition model. Specifically provide an explanation and example as to what signifies a performance obligation.
  2. Provide an overview of Krispy Kreme’s business model and summarize the unethical accounting and business practices at the company as detailed in “Krispy Kreme, Sarbanes-Oxley, and Corporate Greed.” Specifically, report on the company’s channel stuffing business procedures.
  3. Summarize the facts presented in Krispy Kreme’s stock value as detailed in “A Hole in Krispy Kreme’s Stock.”
  4. Explain the relationship between the company’s unethical accounting practices and the decrease in value of its stock.

While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

 

A HOLE IN KRISPY KREME’S STORY.

Authors:Serwer, AndySource:Fortune International (Europe). 6/14/2004, Vol. 149 Issue 10, p23-23. 2/3p. 2 Color Photographs.Document Type:ArticleSubject Terms:*Business losses
*Business planning
*Corporate finance
Doughnuts
Low-carbohydrate dietCompany/Entity:Krispy Kreme Doughnut Corp. Ticker: KKD
Dunkin’ Donuts LLCNAICS/Industry Codes:522291 Consumer Lending
311812 Commercial Bakeries
311813 Frozen Cakes, Pies, and Other Pastries Manufacturing
311814 Commercial bakeries and frozen bakery product manufacturingAbstract:Wall Street is having a hard time digesting the news that Krispy Kreme Doughnuts’ business is slowing down because of low-carb diets. But is the company’s slowdown temporary? In May 2004, Krispy Kreme chief executive officer Scott Livengood announced the company’s first loss since going public in 2000 (this because it was writing off the cost of shutting down a bread company it had bought). Krispy Kreme has long been a favorite target of short-sellers. They say the company has been overly aggressive in expanding. Krispy Kreme made the misstep of buying that bread company as the low-carb craze was kicking in. And Dunkin’ Donuts, owned by Britain’s Allied Domecq, seems to have new life and recently inked a deal to open stores in Wal-Marts.Full Text Word Count:651ISSN:0738-5587Accession Number:13348828 Choose LanguageالعربيةБългарскиČeštinaDanskDeutschΕλληνικάEspañolPersianFrançaisעבריתहिंदीHrvatskiMagyarIndonesiaItaliano日本語한국어NorskNederlandsPolskiPashtoPortuguês (Portugal)RomânăРусскийSlovenčinaSlovenščinasrpski (latinica)SvenskaไทยTürkçeУкраїнськаاردوTiếng Việt简体中文繁體中文 

A HOLE IN KRISPY KREME’S STORY 

Full Text

Listen American Accent Australian Accent British Accent Section:First

Stock Market

Wall Street is having a hard time digesting the news that Krispy Kreme Doughnuts’ business is slowing down because of low-carb diets. But here’s the 6,000 dozen question: Is the company’s slowdown just a little Atkins hiccup? Or is it a bigger burp that suggests other, deeper problems at the Winston-Salem doughnut company?

As you may recall, in late May Krispy Kreme CEO Scott Livengood announced the company’s first loss since going public in 2000 (this because it was writing off the cost of shutting down a bread company it had bought), and said it would open only 100 stores this year, vs. a previous forecast of 120. The company had warned investors of this earlier in the month, and its stock had tanked. KKD now sells for $20 a share, down 60% from its all-time high of nearly $50 last summer. So exactly how did this “get ’em while they’re hot” company become so cold?

Well, Krispy Kreme has long been a favorite target of short-sellers–the percentage of its shares available for trading owned by shorts was over 25% in April. Not only did the shorts make out when the stock plunged after the company’s warning, but they were quick to scoff at the notion that Krispy Kreme’s problems were solely the fault of the late Dr. Atkins. A diet as a beard, they claimed. The shorts say in fact the company has been overly aggressive in expanding. They point to its strategy of selling its doughnuts in supermarkets as cannibalizing its stores. They complain that transactions with large franchisees have been complex and, some suggest, inappropriately skewed so as to benefit the company’s earnings. To sum up, read this from the requisite lawsuit filed by the infamous Milberg Weiss law firm: “Rather than cultivate a steady customer based [sic], the Company instead attempted to capitalize on Krispy Kreme’s ‘fad appeal’ and adopted a business model and strategy for increasing sales that was predicated on the perpetual addition of new stores and the hyping of the Company’s entry into new markets…. “

So are the shorts right? Well, they aren’t entirely wrong. First off, it should be pointed out that KKD’s stock was flying above the clouds and getting a bit close to the sun anyway. (I should also point out that less than a year ago FORTUNE ran a cover story entitled “How Krispy Kreme Became America’s Hottest Brand.” Lately folks have been reminding me of that story–probably because I wrote it.) Krispy Kreme also made the misstep of buying that bread company early last year, as the low-carb craze was kicking in. And Dunkin’ Donuts, owned by Britain’s Allied Domecq, seems to have new life and recently inked a deal to open stores in Wal-Marts. To be sure, Atkins mania has to be cutting into the business. But when you add up all of the shorts’ charges, you can’t help but come to the conclusion that Krispy Kreme has become a bit aggressive–particularly over the past year. It’s what happens when a company feels compelled to please Wall Street.

Some say this is just one fad –Krispy Kreme–running headlong into another fad–Atkins. But Krispy Kreme, which has been around since 1937, is more than just a fad, and for that matter the same is probably true with carb counting. What’s really going on here is a story of a stock that got way ahead of itself, and a company that perhaps began to believe too much in its own hype. By the way, the shorts haven’t abandoned the stock yet. As of mid-May, the short position in KKD’s stock had actually climbed to 30%. It’s now up to Livengood and company to prove them wrong.

PHOTO (COLOR):CEO Scott Livengood has seen his company besieged by short-sellers.

PHOTO (COLOR)

~~~~~~~~

By Andy Serwer 

A HOLE IN KRISPY KREME’S STORY.

Authors:Serwer, AndySource:Fortune International (Europe). 6/14/2004, Vol. 149 Issue 10, p23-23. 2/3p. 2 Color Photographs.Document Type:ArticleSubject Terms:*Business losses
*Business planning
*Corporate finance
Doughnuts
Low-carbohydrate dietCompany/Entity:Krispy Kreme Doughnut Corp. Ticker: KKD
Dunkin’ Donuts LLCNAICS/Industry Codes:522291 Consumer Lending
311812 Commercial Bakeries
311813 Frozen Cakes, Pies, and Other Pastries Manufacturing
311814 Commercial bakeries and frozen bakery product manufacturingAbstract:Wall Street is having a hard time digesting the news that Krispy Kreme Doughnuts’ business is slowing down because of low-carb diets. But is the company’s slowdown temporary? In May 2004, Krispy Kreme chief executive officer Scott Livengood announced the company’s first loss since going public in 2000 (this because it was writing off the cost of shutting down a bread company it had bought). Krispy Kreme has long been a favorite target of short-sellers. They say the company has been overly aggressive in expanding. Krispy Kreme made the misstep of buying that bread company as the low-carb craze was kicking in. And Dunkin’ Donuts, owned by Britain’s Allied Domecq, seems to have new life and recently inked a deal to open stores in Wal-Marts.Full Text Word Count:651ISSN:0738-5587Accession Number:13348828 Choose LanguageالعربيةБългарскиČeštinaDanskDeutschΕλληνικάEspañolPersianFrançaisעבריתहिंदीHrvatskiMagyarIndonesiaItaliano日本語한국어NorskNederlandsPolskiPashtoPortuguês (Portugal)RomânăРусскийSlovenčinaSlovenščinasrpski (latinica)SvenskaไทยTürkçeУкраїнськаاردوTiếng Việt简体中文繁體中文 

A HOLE IN KRISPY KREME’S STORY 

Full Text

Listen American Accent Australian Accent British Accent Section:First

Stock Market

Wall Street is having a hard time digesting the news that Krispy Kreme Doughnuts’ business is slowing down because of low-carb diets. But here’s the 6,000 dozen question: Is the company’s slowdown just a little Atkins hiccup? Or is it a bigger burp that suggests other, deeper problems at the Winston-Salem doughnut company?

As you may recall, in late May Krispy Kreme CEO Scott Livengood announced the company’s first loss since going public in 2000 (this because it was writing off the cost of shutting down a bread company it had bought), and said it would open only 100 stores this year, vs. a previous forecast of 120. The company had warned investors of this earlier in the month, and its stock had tanked. KKD now sells for $20 a share, down 60% from its all-time high of nearly $50 last summer. So exactly how did this “get ’em while they’re hot” company become so cold?

Well, Krispy Kreme has long been a favorite target of short-sellers–the percentage of its shares available for trading owned by shorts was over 25% in April. Not only did the shorts make out when the stock plunged after the company’s warning, but they were quick to scoff at the notion that Krispy Kreme’s problems were solely the fault of the late Dr. Atkins. A diet as a beard, they claimed. The shorts say in fact the company has been overly aggressive in expanding. They point to its strategy of selling its doughnuts in supermarkets as cannibalizing its stores. They complain that transactions with large franchisees have been complex and, some suggest, inappropriately skewed so as to benefit the company’s earnings. To sum up, read this from the requisite lawsuit filed by the infamous Milberg Weiss law firm: “Rather than cultivate a steady customer based [sic], the Company instead attempted to capitalize on Krispy Kreme’s ‘fad appeal’ and adopted a business model and strategy for increasing sales that was predicated on the perpetual addition of new stores and the hyping of the Company’s entry into new markets…. “

So are the shorts right? Well, they aren’t entirely wrong. First off, it should be pointed out that KKD’s stock was flying above the clouds and getting a bit close to the sun anyway. (I should also point out that less than a year ago FORTUNE ran a cover story entitled “How Krispy Kreme Became America’s Hottest Brand.” Lately folks have been reminding me of that story–probably because I wrote it.) Krispy Kreme also made the misstep of buying that bread company early last year, as the low-carb craze was kicking in. And Dunkin’ Donuts, owned by Britain’s Allied Domecq, seems to have new life and recently inked a deal to open stores in Wal-Marts. To be sure, Atkins mania has to be cutting into the business. But when you add up all of the shorts’ charges, you can’t help but come to the conclusion that Krispy Kreme has become a bit aggressive–particularly over the past year. It’s what happens when a company feels compelled to please Wall Street.

Some say this is just one fad –Krispy Kreme–running headlong into another fad–Atkins. But Krispy Kreme, which has been around since 1937, is more than just a fad, and for that matter the same is probably true with carb counting. What’s really going on here is a story of a stock that got way ahead of itself, and a company that perhaps began to believe too much in its own hype. By the way, the shorts haven’t abandoned the stock yet. As of mid-May, the short position in KKD’s stock had actually climbed to 30%. It’s now up to Livengood and company to prove them wrong.

PHOTO (COLOR):CEO Scott Livengood has seen his company besieged by short-sellers.

PHOTO (COLOR)

~~~~~~~~

By Andy Serwer

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