Summary Blog

Article from MercoPress:

http://en.mercopress.com/2009/04/02/g-20-agrees-on-1.1-trillion-usd-and-tougher-rules-to-tackle-global-crisis

SUMMARY

This article I just read was about the outcome of the 2009 G-20 London Summit. This was the second G-20 Summit since last year in Washington and the leaders of states from the Group of Twenty Finance Ministers and Central Bank Governors all attended. The obvious goal of this summit is to find a way to overcome the global economic crisis. The summit started on April 1st and the outcome was announced on April 2nd. Despite different and contradicting financial strategies between some of the countries, the 20 leaders came to an agreement to fight against the economic crisis by stimulating the global economy with 1.1 trillion US dollars. This amount was distributed in these ways. 500 billion dollars would be made available to the IMF (International Monetary Fund, a major international organization that oversees the global financial system) to provide aid for struggling economies around the world. Another 250 billion dollars were announced for a new IMF overdraft facility. To boost world trade, 250 billion dollars were once again provided. In the end, a 100 billion dollars were approved to assist international banks in lending money to poor countries. The G-20 leaders also decided to work with the IMF to ensure a more stabilized world economy and to provide a early warning system for future economic crises.

CONNECTION


The study of accounting is obviously related to the economics and the financial status of the world. that's why I thought that it would be a good idea to use the huge economic crisis we're experiencing right now as the topic of my summary blog of the year. Huge international banks irresponsibly lending "unlimited" amount of money to "anyone"(meaning that they don't have to prove their ability to pay the mortgage) who wanted to buy house was one of the major causes of this economic crisis. When people realized that they couldn't afford the house anymore, the banks simply took the house back and tried to sell it. But since it turned that so many people couldn't pay their mortgage, the number of houses for sale on the market increased dramatically, eventually causing the house price to decrease. This way, the banks started to lose money and their liabilities went high up into the sky. In the end, they went bankrupt. With all that money provided by the super powers now available to the world, It is possible to say that our economy might start to get back on track in one or two years (best case scenerio).

REFLECTION

First of all, 1.1 trillion... This is hugest number I've ever seen! I think I might need a calculator to figure out how many zeros there is. It seems that our economy is not THAT bad after all. Coming back to the economic crisis, I blame the greedy and irresponsible business people. They are always trying to maximize profit without considering any consequences that may follow, and now look where they got the whole world into. After they realize the consequence, they simply announce bankruptcy and go to where ever to spend the rest of their miserable and pathetic lives, leaving the completely messed up global economy in our hands. Now everyone of us is suffering for their faults, I find that really unfair. I'm quite impressed to see that the leaders from 20 of most influencial countries actually came to an agreement and invest such a huge amount of money to stimulate the economy. But I also think that the way our economy is running should seriously be improved, especially the policies of banks. If we just throw in a whole bunch of money to get the economy back on track, and just continue to allow those bank owners to do as they will, we'll probably find our economy back to the state it is today in no time.

Chapter 16 Blog

Article from The New York Times:

http://www.bizjournals.com/portland/stories/2009/03/09/daily22.html

SUMMARY


It is reported that residential real estate agents on the west side of the United States earn the most commission on home sales last year. The average home price in the west is the highest in the country, reaching $312,000. ForSaleByOwner.com, a website that provides home sales advertising services in 1999 reported that western real estate agents averagely earned a commission of $16,230, which is a figure a bit higher than that of the northwest and significantly higher than those of the south and midwest. Although these figures may not look bad, but if we look at the total agent commission nationwide, we can see that a significant drop of $12 billion from 2007 ($58.4 billion) to 2008 ($46.6 billion). There is no big surprise since the commisions started to decline ever since 2005, when the figure that year reached a high $71 billion. The national average commission in the year 2008 was $12,600, which is around $1,000 lower when comparing it to the figure in 2007.

CONNECTION

I connect this article to the first of section of Chapter 16, where it talks about the three different types of gross pay. Real estate agents are one of the best examples for people who earn money by commission. Some of the agents are hired by real estate companies, therefore they are paid a basic salary, but some portion of the commission they earn obviously has to go to the company. This kind of job is more secure since if the country goes into recession and less people buy houses, even if they don't get to sell any houses, they are still paid to support their livings. However, some of the agents create their own little company. In this case, although they get more commission, that is the only money they'll earn, And if a recession happens and the market falls (like right now), they will have no income if no houses are sold. Other examples of commission earners are sales representatives from large retail stores. They often try to persuade customers into purchasing additional products and services, such as accessories, service plans, and extended warranties. If the customers agree to purchase them, a large portion of the money goes to the pockets of the sales representatives.

REFLECTION

First of all, I am quite impressed to find out that real estate agents in the United States are earning an average of $16,230 per home, while the average price of homes is $312,000. That is more of 5 per cent of the home price. As far as I know, the usual amount of commission a Vancouver real estate agent earns for selling a house is around 5 per cent of the home price for the first 100 to 200 grand, then 2~3 per cent for the rest of the price. This information may not be THAT accurate, but we kind of have the idea that US real estate agents seem to be earning a bit more commissions than Canadian agents. I also find that a drop of only $1,000 in the national average commission between 2007 and 2008 but that bad since the US fell deeply into recession in 2008. The significant drop of $12 billion in total commissions is quite predictable because it is obvious that not many people like the idea of buying houses during such a period of time.

Chapter 15 Blog

Article From The Sydney Morning Herald:


http://business.smh.com.au/business/recession-be-damned-as-apple-bucks-sales-trend-20090122-7nvo.html





SUMMARY
I found this article from The sydney Morning Herald and it talks about the earnings and sales trend of the famous Apple Inc. While other major electronic corporations (Sony, Fujitsu, etc) are experiencing low income due to the on-going major recession, Apple's profit during the last year has actually exceeded the expections of analysts. In the period ended December 27, 2008, sales has increased by 5.8 percent to $US 10.2 Billion. The first-quarter net income also rose by 1.5 per cent to reach $US 1.61 billion. It is reported that Apple managed to sale 4.36 million Iphones, 22.7 million Ipods, and 2.52 Macs in the quarter, despite that period being the worst US holiday shopping season in the last few decades. Apple also rose to $US 92.70 on the Nasdaq Stock Market recently, which is a significant $US 9.87 increase. Another thing to point out is that the shares fell 57 per cent last year. Analysts claim that Apple is running very successfully while selling huge quantities of its premium quality products. Upon its release, The Iphone has contributed a significant portion of Apple's profit. Analysts states that it is still at an early stage of its cycle and will continue to have more growth in the future. Chief operating officer Timothy Cook denied the rumors about offering a stripped-down version of the Iphone in the future and is has a good feeling about the their competition with other major corporations. Apple Inc is currently running without the management of CEO Steve Jobs, who is on medicare leave and is expected to be back in June.

CONNECTION
The part of the articles that talks about the increase of decrease in net income, sales, and stock shares between different quarters is related to some of the concepts I learned in Chapter 15. Analysts use the trend analysis technique to estimate the earnings and sales of the company in the future. They record and use the major sales and income figures from the past quarters as well as other information they gathered to predict the amount of impact the recession can have on the new figures. After the results are announced, they use comparative financial statements to compare the new figures with those in the past to determine the performance of the company. They also use percentage charts to convert the increase or decrease into percentages for better and easier understanding. Insiders of the company also use comparative financial statements to determine the current status of the company, which will then help them to decide on future plans.

REFLECTION
I was not really surprised when I read that Apple overcame the worst holiday shopping season during the most severe recession since the great depression. I have always thought that Apple is most successful entertainment electronics corporation. The quality of their products is probably somewhere on the top among hundreds of other companies. Their products have really creative features and sleek designs that really distinguish Apple from the other competitive brands. Apple also have great ways to promote and advertise their products, such as the CEO, Steve Jobs holding a conference to unveil new products. The insiders of Apple also make really great decisions to increase the profit. As we know, major Apple products such as Ipods, Macbooks, and the Iphone almost evolve every one or two years. Each time new features and designs are developed to encourage owners of the previous models of the product(s) to buy the new one. There are lots of other strategies Apple uses to stand out in the competitive industry. But just by looking at some of the points listed above, we can see why Apple has the strength to overcome the recession while other companies are suffering from great loss in profit.

Chapter 14 Blog

Article From Forbes:
http://www.forbes.com/feeds/ap/2008/11/10/ap5672632.html


Summary

The article I read is about the falling interest rates charged on credit cards in the US. According to bankrate.com,The interest rates, or the APR (stands for annual percentage rates) of low-interest cards, which offer lower-than-average rates to customers with strong credit histories have experienced a fall of 0.02 percent. The rates for cash back cards, which offer card rewards to credible customers went down by 0.07 percent. While balance transfer cards, which allow customers to consolidate outstanding debt from one of more cards slipped from 13.39% to 13.33% during the last week. The rates of these popular credit cards had been falling for almost three straight weeks up to now. The average APR of the top ten banks and markets in the US is 13.30%, 0.03% lower than the last week.

Connection

This article is closely related to the Chapter since one whole section of the Chapter talks about credit cards. The article introduces some of the popular credit cards used in the US to us. As mentioned in the chapter, more and more people are using credit cards for most of their daily transactions. Some of the merchants nowadays also prefer credit cards over cash. This is because by using credit cards, one does not need to carry cash with them therefore it is more convinient and more safe. The bank, normally also the issuers of the major credit cards, earn profit from credit cards by charging the merchants accepting credit cards an annual fee, and by charging bank customers APR, or Annual Percentage Rate. When one consumes more, the amount of APR he/she needs to pay increases. Therefore, when banks decide that they need to earn more profit, they would usually increase the APR.

Reflection

I once again relate this article to the recent global economic slowdown. I remember over the past few years, there are often news about banks continuously increasing the APR. Though most people were against the rising APR, they still continue to use credit cards. Later I found out this was because the World's economy had been boosting during previous years. People earned more income and there were more job oppurtunities. Therefore they consumed more money didn't really care much about the APR. But because of the recent recession around the world, people aren't consuming as much as they used to. Some of them now choose to use cash instead of credit cards to avoid paying the high APR. This significantly decreases the banks' earnings. Therefore, to encourage customers to use credit cards and consume more, many of the major banks are lowering their APR. Right now, this seems to be the only way to increase the banks' profit. I'm sure that the rates will starting rising again once the recession is over.

Chapter 12 Blog

Article from The Associated Press:

http://ap.google.com/article/ALeqM5g_Dkb4nllAY-82L6FpxvFkCZH3CgD9447IDO0



Summary

This article focuses on the global economic slowdown that broke out recently and its influence on the Japanese electronics market. Yen, the currency used in Japan has been rising significantly during the last few months and the sales of many major Japanese electronics company fell sharply. One of the leading companies, Sony Corp, has reported that its net profit has sank 72 percent for the July-September period. Because of the global economic slowdown, Yen tends to continue rising, which would cause earnings of these companies to become more vulnerable when the overseas profit in other currencies is converted back to Yen. Again, Sony Corp, which makes 80% of its profit overseas, is suffering this situation. Instead of earning profit, Toshiba, also one of the leading companies on the electronics market, has lost about 272 million dollars during the July-September period. Other companies such as Fujitsu, Canon, and Panasonic have also been reported to earn a much lower profit for the same period. Because of the out break of the recent global economic slowdown, these companies are continuing to expect a really low profit for the Christmas season.

Connection

The article is connected to the Journal and discount section of Chapter 12. As mentioned in the summary, since the sales of the companies decrease, the total sum of their sales journal would be much lower, and this would directly cause a decrease to the net profit. The decrease is even more significant when the overseas profit of the companies in dollars, euros and other currencies are converted back into Yen. This is because since the Yen is rising, the same amount of money in dollars or euros is worth less money in Yen compared to a few months ago. The rise of Yen also negatively affects the exporting of goods from Japan to other countries since wholesalers from other countries now have to pay more money of their currency to buy the same amount of goods. This way, to avoid a loss of profit, the Japanese companies will likely offer discounts to the overseas businesses to increase their sales as much as they can.

Reflection

As many of the people who pay attention to current events and the global financial status would have noticed, since the global economic slowdown had broke out early in September, Most of the major currencies around the world are falling, but this is not the case for the US dollar and the Japanese Yen. Insteading of falling, these two currencies are actually rising. This is mainly because Japan and the US have a strong economy and are not easily affected by the slowdown. The US dollar is at a good status, but the Yen seems to be out of control and rising too fast. This negatively affects the exporting of goods in Japan since overseas businesses would have to pay more money than they usually do to buy the same amount of goods. It also impacts the earnings of companies that make their profits overseas. Recent news reported that the Japanese government is actually use new business policies to control the rising of Yen, which is kind of ironic since in most other countries such as Canada, England and France, their government are doing everything they can to rise their fallen currencies. Most businesses around the world are hoping that the US dollar and the Yen could become stable because their rising creates serious unstability in both the economy and trade around the world.

Chapter 11 Blog

Article from TIME:http://www.time.com/time/world/article/0,8599,1844750,00.html

Summary
This article I read is about the tainted-milk scandal that broke out in China recently. China used to have the world's third largest dairy industry, but not anymore. More than 20 of the dairy companies in China have been found producing contaminated milk containing a banned chemical called Melamine. Adding this chemical to the dairy products can boost up the amount of protein in them. But on the other hand, melamine also causes kidney stones, a serious disease that can be fatal to infants. The scandal broke out when 4 infants were found dead, and more than 53,000 were found sick because of drinking the contaminated milk. Since then, milk consumption in China fell to the bottom. Many of the Chinese citizens are not willing to trust the quality of the milk in China anymore. Supermarkets and retailers clearing all contaminated dairy products off their shelf and their inventories. Contaminated dairy products imported from China are also found in other countries. The Chinese government arrested several people that are associated with producing the illegal products. Milk farmers seem to suffer the most because many dairy companies stop producing and therefore are not buying their milk. Their attempt to directly sell milk to citizen is also unsuccessful. They are now pouring away all the unsold milk left in their inventories and are facing the difficult decision of slaughtering the cattles.
Connection
I connect this article to the merchandise inventory section of Chapter 11. To the milk farmers, supermarkets and retailers, since the milk dairy products are banned and can not be sold, they are no longer profitable and would have to be thrown away. The cost of all the destroyed goods will have to be credited from the merchandise inventory account. The same amount will be debited from the loss of goods expense account. At the end of the accounting period, since the ending inventory account will be lower, the cost of goods sold amount will increase. But because the sales account remains the same, the gross profit will decrease when we subtract the cost of goods sold by the sales. Also, because there will be a large amount in the loss of goods expense, when we subtract the total expenses by the gross profit, the net income will decrease significantly.
Reflection
I have to admit that I was quite shocked when I read this article. It is really unmoral to make big profit by selling products that causes harm to one's health, especially when most of the victims are infants. The dairy companies should know that this scandal will eventually break out, and once it does, they will have face very serious consequences (At least all their earnings through illegal means will be confisticated). Therefore, I think that their "way" of trying to make BIG money is extremely foolish and selfish. Also, the Chinese government should really start inspecting the quality and content of food products more carefully. According to recent surveys after the incident, it seems that many Chinese citizens have completely lost faith in the dairy products produced in China. Some of them are even trying to buy milk from Taiwan, Hongkong, or even from other countries. The government should punish the criminals associated with the scandal hardly and at the same time, carry out actions to make citizens confident about the dairy products produced in China once again. All in all, the precondition for the dairy market in China to recover is that from now on, all dairy products produced in China must be checked to be healthy and most importantly, Melamine-free!