Journal of Information Technology Teaching Cases (2016) 6, 23–35
© 2016 JITTC Palgrave Macmillan All rights reserved 2043-8869/16
palgrave-journals.com/jittc/
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Teaching case
Jongsawas Chongwatpol
NIDA Business School, National Institute of Development Administration, Bangkok, Thailand
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Data analysis and decision making: a case
study of re-accommodating passengers
for an airline company
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Correspondence:
J Chongwatpol, NIDA Business School, National Institute of Development Administration, 118 Seri Thai Road, Bangkok,
Bangkapi 10240, Thailand.
Tel: +0867769686
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Abstract
This case is designed to illustrate the conceptual foundations of business intelligence; thus,
the analysts can develop an understanding on how to utilize the business intelligence
framework to make proper decisions in the turbulent and competitive business environment.
The case started when Bob, the senior vice president of Thai ABC Airline, had to implement
a new method of re-accommodating passengers in the case of canceled/delayed flights.
The first incident was reported that the flight from Bangkok, Thailand (BKK) to Hong Kong
(HKG) was expected to be delayed and seven passengers would definitely miss the original
connecting flight from Hong Kong to Chicago, USA. Unfortunately, the next available flight to
Chicago was almost fully booked and could accommodate only two more passengers.
Thus, Bob and his team had to decide which two passengers should be on the next
available flight and which others would have to stay overnight in Bangkok for the morning
flight to Chicago on the next day. The following topics are discussed in or raised by the case:
(1) Airline Industry and the incidence of passengers’ dissatisfaction because of delayed/
canceled flights, (2) Business intelligence concept, (3) Customer acquisition and customer
retention, (4) Social media and key influencers, and (5) Decision making based on different
airline’s strategic direction.
Journal of Information Technology Teaching Cases (2016) 6, 23–35. doi:10.1057/jittc.2015.16
Keywords: business intelligence; analytics; airline; misconnecting; customer lifetime value
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n a busy day in May 2015, Bob, the senior vice president of
Thai ABC Airline, was still thinking about the Airline’s
problem of poor customer satisfaction rate that he had just
spent the better part of the morning discussing with two key
members of his team. He had called the meeting to ascertain
whether both members had any innovative ideas that the Airline
might implement to address the poor customer satisfaction rate
that had long afflicted the carrier and the two predecessor
airlines whose late-2014 merger had formed it. With approximately 1.5 complaints per 10,000 passengers per year, the Airline
had the dubious distinction of having the highest ratio of
passenger complaints among all the carriers in SEA. From his
earlier investigation of complaints filed by passengers with the
Airline’s representatives, Bob already knew before the meeting
with his team members that the most common complaint
concerned canceled or delayed flights, a chronic ‘legacy’ problem
inherited from the two predecessor carriers.
Bob understood those issues, none of which were unique to
Thai ABC Airline, but believed that if a new method of reaccommodating passengers could be devised in cases of
canceled or delayed flights, a couple of short-term advantages
would accrue to the Airline. Specifically, the proper handling
of passengers when they were about to miss their flight would
not only alleviate the situation and minimize passenger
complaints, but also retain value passengers for the Airline
while maintaining passenger satisfaction levels. Longer term,
however, Thai ABC also had plans to tackle the issue of
mechanical problems that were known to be the core problem
that accounted for a sizable proportion of the reasons for
delayed and canceled flights. That is, by investing in the new
technologically advanced airplanes that offered both better
fuel efficiency and systems maintenance, the Airline planned
to reduce substantially the number of canceled and delayed
flights that led to passenger complaints in the first place.
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Data analysis and decision making
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24
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Inconsiderate and unhelpful customer service, especially in
the treatment of delayed passengers.
Damaged or delayed baggage.
The handling of refunds in the case of missing flights, fare
adjustments, and unused or lost tickets.
Over-sales – for instance, the overbooking of seats on flights.
Examining the list, it occurred to Bob that the design and
implementation of a better method of re-accommodating
passengers in the case of canceled/delayed flights might
enable the Airline to make a big dent in the number one
complaint
As it happened, a new re-accommodation situation has
just arisen and needed to be sorted out on the Bangkok
(BKK) to Chicago (ORD) via Hong Kong (HKG) flight, the
most problematic international route. This might be, Bob
thought, a serendipitous test case in which to further
develop his thinking about improvements in the re-accommodation rebooking scheme that he had just thrashed
around with Peter and John.
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Overview of Thai ABC airline
Thai ABC Airline was the outcome of a merger of two
erstwhile competitor carriers, Bangkok ABC Airline and
Thai XYZ Airline. Bangkok ABC had been for years the
second largest airline in Thailand and the fifth largest
airline in Southeast Asia (SEA). Thai XYZ Airline had been
in the business for over 20 years before being forced into
bankruptcy in late 2012 by its fifth consecutive year of
annual losses. The losses were attributable to a combination
of poor customer satisfaction ratings and inefficient operations, resulting in not only a reduction in the number of
passengers but also substantially increased operating costs.
As Thai XYZ’s bankruptcy proceedings had entered 2014,
Bangkok ABC perceived a business opportunity in its
former competitor’s misfortune and expressed an interest
in a possible merger with Thai XYZ. The merger was viewed
as particularly attractive, as it would give the consolidated
carrier exclusive routes across SEA and the United States.
Hence, in mid-2014, Bangkok ABC announced its intention
to merge with Thai XYZ; and, after all passengers’ award
mileage and elite-qualifying activity were combined in the
fourth quarter of the year, the merger was finalized at the
end of 2014 and the newly merged entity, ‘Thai ABC
Airline,’ took flight.
As the merger had moved toward its anticipated consummation, Bob had been hired as the senior vice president of
Thai ABC Airline with the explicit mandate to solve the
problem of poor customer satisfaction that had afflicted the
carrier for years. Indeed, with the imminent consummation of
merger with Thai XYZ, this was a matter of top priority
because, at 1.5 complaints per 10,000 passengers, Thai XYZ’s
own customer complaint ratio was equally dismal, and like
Thailand ABC’s, among the highest among the carriers in
SEA. Moreover, Bob had been given to understand that the
low level of passenger satisfaction indicated by such complaint
rates had been one of the two main factors that had tipped
Thai XYZ into bankruptcy in the first place. Some way had to
be found to avoid having that fate befall the soon-to-emerge
new carrier, Thai ABC.
Over the course of the next several months, as Bob had
begun investigating the complaints that passengers had filed
with the airlines’ representatives over the previous 5 years, he
had surmised that passenger complaints tended to fall into one
of several categories. In descending order of their frequency,
the following were the major ones:
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Having just ‘brainstormed’ with his team the issue of how
the current passenger re-accommodation method could be
greatly improved, Bob was mentally reviewing all that the
team had discussed. ‘Conceivably,’ he heard himself exclaim
aloud, ‘we just might have surfaced a method of passenger reaccommodation with the potential to both minimize passenger complaints and optimize Airline revenue when delayed or
canceled flights do occur!’ He could hardly contain his
excitement about the prospect, but nevertheless deemed it
wise to continue to ponder the new method before taking a
firm decision.
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Canceled or delayed flights – whether attributable to
weather (50%) or to mechanical issues (50%). This was by
far the most common complaint.
The BKK-HG-ORD problem route and the current rebooking
scheme
The perennial problem route: BKK-HKG-ORD
The instant need for rebooking decisions had arisen, as it
often did, from a delay in the flight from Bangkok to Hong
Kong. This time, there were seven passengers, who would
definitely miss the connecting flight from Hong Kong to
Chicago, USA. It was the airline’s responsibility to reschedule those passengers either to the next flight later in the
day or to a flight on the next day. However, because of the
limited seat-availability during the high travel season as the
year-end approached, the next flight to Hong Kong that
would enable an on-time connection to the flight to Chicago
could accommodate only two passengers. The other five
passengers would have to stay overnight in Bangkok. To
determine how the decision as to which two passengers
would be boarded and which would have to be re-scheduled, Bob had wanted to learn, first, how the dilemma would
be resolved with current re-accommodating strategies and,
then determine whether the analysis of various other factors
might facilitate a superior solution for the Airline and the
passengers alike. The resulting insights could then be
adopted as a ‘best practice’ and be implemented as the
Airline’s core strategy for handling misconnected passengers on other routes.
With that in mind, earlier that morning, he had urgently
called together Peter, formerly business intelligence expert at
Bangkok ABC Airline, but now senior business intelligence
expert at Thai ABC Airline, and John, formerly manager of the
customer relations division at Thai XYZ Airline, for a meeting
to discuss flight TB-8880 that was about to miss its schedule
because of an engine-related problem. The incident reported
from the engineering team was as follows:
Flight (TB-8880) from Bangkok, Thailand (BKK) to Hong
Kong (HKG) from 01.00 to 04.45 PM was at best expected
to be delayed for at least 2 h as one of the engines was
overheated and could not be easily fixed. There was a high
chance that the fight would be cancelled.
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Data analysis and decision making
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25
The next flight operated by Thai ABC Airline to Hong Kong
(TB-8882) was scheduled at 03.00–06.45 PM; meanwhile,
the flight operated by its alliance [partner] would not leave
until 05.00 PM.
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It was, therefore, clear to the team that several passengers
would definitely miss the connecting flight (TB-676) from
Hong Kong to Chicago scheduled at 09:00 PM. The problem
was that the flight operated by Thai ABC Airline to Chicago
was only scheduled for once a day, and the earliest flight to
Chicago with its partner would depart at 09:00 AM on the
next day.
Bob knew that, from the perspective of passengers, it was
quite frustrating when things went wrong. He also knew that
the Airline could not afford losing its clients or leaving
passengers with disappointment and low expectations again
and again. With a furrowed brow, he emphasized to his team
that:
waiting at the airport lounge for several hours. Meanwhile,
Danny had a final destination of Las Vegas, NV, shown in
Appendix A.
With respect to frequent flyer status, Tom was a 2015
diamond member, the highest status granted to a frequent
flyer of the Airline, which was earned when a passenger had
reached the 100,000 qualified miles in the previous year. Jennie
was a million miler, having flown with the Airline and its
partners for over a million qualified miles and, therefore,
having automatically received a gold member status, the
second highest status with the Airline’s frequent flyer program. Danny had earned gold status when he reached 50,000
qualified miles in 2014. Michael also held gold status, as he was
currently participating in the Premier Status Match Challenge
program, where he could earn the premier diamond member
if he could fly more than 30,000 qualified miles on flights
operated by Thai ABC Airline within the next 90 days. Ben,
Joe, and Jane were all in the basic traveler category without any
elite status.
Chiming in at this point, John explained further that the
current re-accommodating scheme was based on the booking
class and fare, with business/first class ticketed passengers
receiving the top priority.
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In perusing the passengers’ schedule on both direct and
connecting itineraries, John noted that:
The first task is to reschedule passengers leaving for Chicago
to Flight TB-8882 so that they would able to catch the
connecting flight in Hong Kong. Otherwise, they will end up
staying overnight in Bangkok. The problem unfortunately,
is that the Fight TB-8882 is almost fully booked and can
accommodate only two more passengers and only in
economy cabin.
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Then, turning to Peter, the senior business analyst, Bob asked
him to share with the team his successful experiences at
Bangkok ABC Airline in resolving such rebooking dilemmas.
After all, Bob pointed out, that after the completion of airline
merging processes, the legacy systems of the two companies –
including database, operating systems, accounting, reservation
systems, and so on. – had been combined, with the business
intelligence (BI) framework of Bangkok ABC adopted as the
‘best practice’ and, therefore, as the main system of the new
Thai ABC Airline. Hence, the instant re-accommodation
problem, he believed, was a good time for the team, including
John, to familiarize themselves with Thai ABC’s new
approaches to BI technology and re-bookings issues, with the
view to ascertaining how satisfactorily it would solve the
instant problem and, longer term, improve passenger
satisfaction.
Do
Existing and contemplated rebooking schemes at Thai ABC airline
Swinging into action, Peter quickly retrieved data from Thai
ABC’s data warehouse to get some sense of each passenger,
while John spoke telephonically with Thai ABC’s airline agent
at the counter explaining the situation. The only good news at
the moment was that check-in had not yet begun, as the
Airline counter would not be ready for about another hour.
(See Appendix A for the flight, status, and booking information on each passenger that Peter had pulled up from the
database.)
From Peter’s query of the database, most of the passengers
were starting the trip from Bangkok for the final destination of
Chicago, with the exception of Jennie, who had been on the
connecting flight from Singapore (SIN) and had been already
That’s how we [i.e., Thai XYZ Airline] did [it]. It’s quite
simple. . . . [T]hey paid for the better service especially in
business or first class. Thus, they deserved better care from
our side, didnt they?
Peter did not argue with John about whether that was a right
or wrong approach, but insisted that there were ‘so many
factors needed to be considered’ before deciding too quickly.
As members of top management, it was very important to
gather relevant, complete, and up-to-date data before making
any decision, Peter explained. Bob nodded in agreement and
asked Peter to pull up the historical data on the number of
qualified miles earned so that he could understand the
traveling patterns of each passenger.
So many factors that needed to be considered
Historical data on qualified miles (degree of loyalty and trends)
With a few clicks on his keyboard, Peter soon brought forth
from the database the last three years of data on each of the
seven passenger’s lifetime miles earned with the Airline. As
presented in Appendix B:
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Jennie, who had flown over 1,500,000 total miles, had not
traveled as frequently as she once did. However, it seemed
that she had started traveling again this year; and, so far she
had earned a fairly modest amount of miles at 20,000 miles
in 2015.
Tom was a steady traveler with approximately over 100,000
accrued miles annually for three consecutive years. He also
had traveled quite often in 2015, having earned 30,000 thus
far. His lifetime miles also placed him among the top
travelers.
Michael and Ben were definitely new travelers as there were
no records of them in the house file.
Danny had been with the airline for some time and had
seemed to increase his travels gradually since 2012.
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Data analysis and decision making
J Chongwatpol
26
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While Peter was gathering information and presenting the
historical data for each customer, John added that by looking
at the Premier Status Match Challenge Program, it could be
seen in the application form that Michael was holding the
highest elite status with the Airline’s competitors, in that
he flew over 100,000 miles annually. He had begun participating in the Challenge Program because he had just moved to
Bangkok, the hub of the Thai ABC airline, meaning more
flight schedules offered, fewer connecting flights, and somewhat cheaper fares.
center when he needed to book multiple cities for an itinerary
with a stop-over in each city for a couple of days. The airline
did not have much data for Michael and Ben, as they were new
customers. Michael booked through the corporate booking
channels, and Ben bought her tickets from a travel agency.
As the airline loyalty program allowed passengers to redeem
their miles for award tickets, Tom and Danny were among
those passengers collecting a significant amount of miles from
flight, credit card, and shopping portals; thus, they often
contacted the loyalty plus award call center to redeem their
mileage for mostly business class tickets for flights to almost
anywhere around-the-world, using both the Airline and its
alliance partners. Owing to the benefit of the award flight
redemption and the elite status they were holding, both Tom
and Danny often contacted the call center, as they were
allowed to change the flight schedule without paying the
changing fees. By contrast, Joe changed or canceled the flight
tickets from time to time but also paid a significant amount of
fees, as he was not holding any elite status with the airline.
Peter’s subsequent calculation of the cost to serve each
passenger clearly revealed that it was quite costly to serve
Jennie, Tom, and Danny, as opposed to Joe and Jane. This was
as Bob had surmised from database information concerning
the differentials in call center usage.
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Joe had only occasionally traveled with the airline in past
years. However, his travel pattern had drastically changed in
2014, making him the first traveler among the seven to
reach 50,000 qualified miles in 2015.
Jane had traveled a bit in 2015. Although she had never
reached gold status, her average miles earned, at approximately 40,000 miles annually, were quite significant.
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Profit matrix/scores
As a senior vice president, Bob realized that revenue and profit
were important factors measuring the performance of the
organization in the long run. Therefore, he next asked John to
delineate the revenue generated solely from the ticket fares for
all flights that each passenger had purchased. Appendix C
presents both lifetime and YTD revenues for each passenger.
Jennie had the highest lifetime revenue, followed by Tom, Jane,
and Danny. This was reasonably in line with the lifetime miles
earned as presented in Appendix B. Both profit score and
frequency trend score were also calculated based on the ticket
fares, number of tickets, and qualified miles earned in the past
3 years. These factors would provide a greater insight into how
each customer contributed to the Airline’s financial performance throughout the time they were with the airline.
The profit scores indicated that Jane and Michael were the
airline’s excellent customers with the highest profit score.
The frequency score indicated that Jennie, Joe, and Jane had
traveled both more and more recently in comparison to
Danny, for whom this was his first flight in 5 months. Tom
was quite a steady traveler, but the Airline had no data for
Michael and Jane, as they were first-time flyers.
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Cost of operations
At this point, Peter reminded Bob that cost of operations
related to serving passengers should also be considered in the
rebooking schemes as the airline spent a significant amount of
money on sales and promotions, passenger services, administration, and infrastructure. John pulled up the record and
focused on the booking channel that the passengers had used
to reserve their tickets, along with the records from its
customer service division.
Per the monthly report shown in Appendix D, Jennie had
used only the Airline call center to find, book, and retrieve the
flight information and tickets – at a high cost to the Airline.
Tom mostly used corporate booking channels for his flights
for business trips. For personal trips, he used websites to
manage his account. Danny, Joe, and Jane were avid new
generation travelers with advanced skills in computers and
technology. They managed their travel through mobile and
web applications, and subscribed to all of the electronic
versions of items such as boarding passes, receipts, and
monthly statements. Danny sometimes contacted the call
More insights into passenger profiles
From online accounts and customer services
As Peter and John were summarizing the data to enable a
prioritization of the passengers for the next available flight,
Bob – realizing that for decisions such as this, ‘more is better’ –
advanced the view that it would be better to gather more
information about each passenger. Fortunately, John could
retrieve some information on passenger backgrounds from the
online accounts and customer services. Here was the additional information that he added to the already retrieved
passenger data.
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Danny was an avid around-the-world traveler, who owned
one of the most famous blogs ‘Travel More with Less’. He
continually provided reviews and deals on airlines, restaurants, and hotels on his blog.
Ben was a famous singer, who was a first-time flyer as well.
Jane was a politician, who was also happened to be against
the campaign, ‘Thailand – AEC Tourism Hub,’ that another
political party was promoting, as she believed the quality of
service providers in Thailand was not yet been ready for
such as big project.
John believed social media was another important factor to be
considered. It was inevitable that the Airline would need to
understand how social media or networking influenced passengers’ perceptions, attitudes, and behaviors concerning the
Airline’s services and operations. For instance, as presented in
Appendix E, Joe and Tom seemed to be the Airline’s most avid
followers as they usually bought flight tickets based on deals
and promotions posted on social media channels. Danny’s
Blog had an affiliated link to the Thai ABC Airline website.
When Danny talked about the Airline’s services and promotions in his blog, the number of clicks through the affiliated
link increased significantly. Thus, Danny’s blog really played
an important role for the Airline and was considered another
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Data analysis and decision making
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From social media
Peter had foreseen how tough could be the impact of social
media on decision making. He proceeded to do a quick
visualization from the data warehouse as an example to figure
out the behavior of all passengers who were using tweeter. There
were many customers who tweeted a lot, but whose opinions
did not have a significant impact on their followers. As
presented in Appendix F, both Joe and Tom tweeted infrequently and clearly did not have many followers. A celebrity like
Ben also did not tweet that much; but, when she did, her
followers and her fan club would definitely pick-up on her.
The key player here, however, was Danny, who not only blogged
a lot on his website and twitter, but also had a lot of followers.
When he ‘blogged’ or ‘twittered,’ his followers definitely paid
attention to his comments or recommendations.
To make the situation even more concerning, John
reminded Bob that the biggest problem might emanate from
Jane. Although Jane did travel with Thai ABC sometimes, her
perception toward the airline might impact its future direction, especially when the airline needed the government’s
support to promote Thailand as the hub of tourism in SEA.
She had not had a pleasant experience the last time she flew
with Thai ABC Airline, based on her complaint to the Airline’s
customer service department. She had complained of ‘chaos’
because of overcrowded passenger conditions that had caused
about a half an hour delay. In addition, she complained that
she found her baggage to be damaged when she arrived at the
destination airport. It was not difficult to imagine her
reactions when she figured out that her flight would be delayed
again. Another headache for Bob, again!
The system also calculated the expected revenue based on
the search queries to give the airline an idea of the potential
revenues gained from each customer, should his or her queries
result in the purchase of an actual ticket. As presented in
Appendix F, the expected revenue for Tom was US$0 as all
queries were for award redemption tickets. In contrast, Joe
seemed to be planning a big spending spree for travel in the
near future. He was looking to book flights with his five friends
or families for trips to Tokyo and Seoul. A recorded total of
50 queries for two possible routes suggested that these were
high-potential trips with respect to the revenue that the
Airline would gain if they should materialize. That is, although
the fares would be for economy class, the expected revenue,
based on the flights searched, was estimated at $12,000.
In addition, the Airline could see the potential demand from
Danny and Jane as well, given their approximately 10–15
search queries, respectively, for excursions that would yield
expected revenue of $1250 and $3000, respectively.
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channel that linked Thai ABC Airline to other customers, both
current and potential. On the other hand, Ben was quite in
another extreme. Her opinion on Social Media sites potentially
drew big attention because she was so popular among the
younger generation. With her lifestyle and personality, she
usually tweeted only about bad experiences she had recently
faced during her last trip or event, promoting the spread of
misinformation or biased opinions to her followers. Bob could
only imagine what the situation would look like when Ben
found out that she could miss the flights to Chicago. Regardless of whether her trip was for business or a personal
vacation, Bob would have a hard time to dealing with the
negative feedback, especially from her fan club. A potentially
big headache for Bob, actually!
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From mobile/web application data
After the merger of the two airlines, the recently implemented
web and mobile applications had allowed the airline to track
all passengers’ activities, starting from when they logged into
their accounts within the last 6 months. Any queries posed by
passengers as they searched through the sites were recorded, as
were any changes in passengers’ preferences, such as favorite
locations, seat selection, or meals. (Appendix G contains
Peter’s demonstration of this new feature.) For instance,
captured data indicated that Tom was interested in redeeming
miles for a business class ticket to Europe for his own personal
use, as he had searched award flights 15 times in the past 6
months The routes he searched were for three of his favorite
cities in Western Europe, that is, Prague, Budapest, and
Bratislava.
Passenger-centric display
At this point, Peter, believing that the team had culled about as
much information on the seven passengers as the databases
contained, introduced his idea about how to develop a business
intelligence ‘dashboard’ to aid in this genre of decision making.
Developed when he worked as a senior business intelligence
expert at Bangkok ABC Airline, the business intelligence dashboard was just a graphical interface that displayed the current
status of information about or factors needed concerning a
specific goal or goals. As an example, he quickly developed a
passenger-centric display (see Appendix H) that consolidated all
relevant data specific to Tom, and displayed the metrics needed
for a specific decision making purpose into a single frame. These
metrics included Tom’s current and future flight information,
past incident reports, profit score, frequency trend, or cost to
serve indicators. This passenger-centric display was customized,
with the ability to pull real-time data from multiple data sources
together in order to indicate the status of each passenger at a
specific point in time. For instance, the display indicated that
the previous flight that Tom had flown with the airline
experienced a 50 min delay on 2 February 2015, and also that
he had not been satisfied with the services, as his baggage had
been lost on his October 2014 flight.
As John played with the newly developed interface and had
a quick glance at each passenger on the display, he could see
the benefit of having such an interface because it greatly
facilitated ready access to needed information and in a short
period of time. He could inform Bob that, for instance,
Michael and Danny were based in the United States and that
approximately 80% of the trips for Danny were flights from
Bangkok to major cities in the United States. For his part, Bob
fully agreed with Peter that the interface was complete,
customizable, and easy to use, especially in gathering all the
information he really needed to justify his decision.
Thai ABC airline policy
Thai ABC Airline was committed to providing an exceptional
travel experience for all customers. The Airline constantly
strived very hard to enhance its service delivery and improve
its current systems and policies with customers in mind.
In addition, the Airline always took into account profound
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Bob mentioned that this year the Airline’s board of
directors had decided to budget approximately $10M dedicated for TV and Internet advertisement, and promotional
campaigns, especially for the elite members, not only to
reward and increase satisfaction of its customers, but also to
compete with its competitors. It had been estimated that with
the current campaign, the number of lost customers (also
called, ‘customer attrition rate’) could be reduced from 20 to
19%. Similarly, Bob was also thinking about setting up a
budget of about the same amount as allocated to its credit card
partners to attract those customers, who had not yet flown
with Thai ABC Airline but had great potential as these
customers always aimed to collect mileage either through
actually flying with the Airlines or from credit card spending.
The ultimate goal was to gain the option to redeem
those collected miles to travel around without having to pay
more to purchase tickets. John estimated that the average cost
to persuade these new customers would be around $750
per person.
John also reminded Bob that the airline core business
routing was that of SEA/Europe. From the approximately
400,000 customers, both active and non-active members, in
the database, John could see a trend of gradually decreasing
flights to Europe and significantly increased demand for
flights to the United States in the past 8 months. He believed
it was a good time for the airline to expand its routes to the
United States. Currently, Thai ABC Airline was ranked fifth in
market share of the Asia/US routings, following Singapore
Airline, Cathay Pacific, Japan Airline, and ANA airline.
Another point to consider was the effects of social media on
the airline industry. Currently, Thai ABC Airline used the
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differences in the value of various customers and segments not
only to appropriately allocate sale forces and other resources
and best serve the right customers, but also provide the
greatest value in return to the enterprise. In fact, over the
years, the Airline had instituted some major changes in flights
award bookings. Also planned for implementation in the next
few years was a switch to a revenue-based mileage-earned
formula, meaning that passengers would earn qualified miles
based on how much money passengers spend per flight rather
than the distance of the flights they actually flew.
Returning to the BKK-HKG-ORD rebooking problem, Bob
and his team had determined that there were a number of
factors that had to be taken into account when arriving at the
value that the Airline placed on its passengers, including
actual ticket price, fare class, purchased ticket routing, and
elite status. Further, any changes to the airline policy usually
resulted in a decrease in the number of customers or customer
satisfaction. For example, as Bob looked at the historical data,
he could see that each year the Airline lost approximately 20%
of its customers, especially when customers perceived negatively the policy changes that were made, for example, the
devaluation of an award chart or a higher bar imposed for
earning qualified mileage. However, he also realized that those
customers who stayed with the airline usually increased the
revenues by approximately 5%. The average revenue earned
for all passengers (both active and inactive) was estimated at
$500 per year. Considering the discount rate of 10% annually,
Bob decided to calculate the average customer lifetime value
(CLV) for all passengers as a reference point (see Figure 1).
Currently, the average CLV was estimated at $2000
per passenger.
Figure 1 Customer lifetime value.
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Data analysis and decision making
J Chongwatpol
29
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3. Calculate the CLV for each customer assuming: the discount rate is 10%; the chance that losing customers to the
competitors is 20% annually; and, a 5% chance that each
customer increases the business if a passenger decides to
stay with the airline.
4. Discuss the importance of customer acquisition and customer retention.
5. Discuss which two passengers should be on the Flight TB8882, and which five would stay overnight in Bangkok.
Note
The condensed data used in this case was acquired largely
through secondary resources. The case extends the original
work of Dave Schrader (2012) ‘BSI: The Case of the
Misconnecting Passengers,’ in which the author focuses on
enhancing the rebooking processes and improving customer
satisfaction at Air London, by integrating data and analytics
to enable smarter decision making by operations and gate
agent personnel. Schrader provides a 7.45 –min video to
present the story, which is published as a part of Business
Scenario Investigations series at the Terada University Network in the United States.
op
yo
social media and online channels to establish personal relationships with its customers and leverage social pressure
affecting purchasing decisions. It was one of John’s important
tasks to respond to any unforeseen changes or the spread of
negative customer reviews in its social media channels such as
Facebook and Twitter, or blogs such as tripadvisor.com or
flyertalks.com. In the past several years, John had observed
many enterprises collapse because of not having a proper
social media policy in place or underestimating the impact of
social media; and, the airline was trying to avoid any surprises
from its followers.
In the case of a delayed or canceled flight, the Airline had
clearly established policies to compensate its customers fairly
based on the ticket class, ticket price, elite status, and other
specific circumstances. Although it was quite costly to the
enterprise, the airline had good relationships with the hotels
nearby the airport and with other alliance partners to accommodate passengers for overnight stays when necessary and for
re-scheduling on partner flights when needed. High ‘value’
customers received $400–$1600 for delayed or canceled
flights; others might receive 5000–20,000 in extra bonus miles
that were enough for redeeming award flights in the future;
and, still others might get upgraded to the next available class
of service. Hence, Bob was much less worried about the
compensation that would have to be effectuated because of
delay than he was about how best to handle the situation.
Acknowledgements
No
tC
Time to lock in the final choices
On the basis of what Bob had learned in the meeting with his
team, he knew that although the Airline always endeavored to
bring passengers to their final destination as scheduled, it was
inevitable that there would be times when flights were delayed
or canceled because of weather conditions and operational or
service issues. Hence, this was a great opportunity for him to
revisit Thai ABC’s current rebooking/re-accommodating
methods to ascertain whether incorporation of the additional
factors that that the team had discussed would facilitate
superior decisions for both the passengers and the Airline.
Given the departure delay confronting Flight TB-8882 on the
BKK-HKG-ORD route, Bob now needed to decide, without
further delay, which two passengers should be on the Flight
TB-8882 and which five would, therefore, have to stay overnight in Bangkok.
Discussion questions
Do
1. Please list all relevant factors that should be included in the
rebooking or re-accommodating schemes.
2. Please construct the business intelligence architecture for
the rebooking decision. Identify the components and their
interrelated function.
The author would like to thank Professor Dr. Clifford E. Darden,
advisor to the NIDA Business School, for his thoughtful and
thorough feedback and comments on earlier drafts of the case.
Reference
Schrader, D. (2012). BSI: The Case of the Misconnecting Passengers. [WWW
document] http://www.teradatauniversitynetwork.com (accessed 15 June 2015).
About the author
Jongsawas Chongwatpol is a lecturer in NIDA Business School
at National Institute of Development Administration. He
received his BE in industrial engineering from Thammasat
University, Bangkok, Thailand, and two MS degrees (in risk
control management and management technology) from University of Wisconsin – Stout, and Ph.D. in management science
and information systems from Oklahoma State University. His
research has recently been published in major journals such as
Decision Support Systems, Decision Sciences, European Journal of
Operational Research, Energy, Industrial Management and Data
Systems, and Journal of Business Ethics. His major research
interests include decision support systems, RFID, manufacturing management, data mining, and supply chain management.
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Data analysis and decision making
J Chongwatpol
30
Table A1 Flight, Status, and Booking Information (Tier #1)
1
2
3
4
5
6
7
a
Name
Jennie
Tom
Michael
Danny
Ben
Joe
Jane
Routing
Status
SIN-BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD-LAS
BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD
Premier Status Match Challenge program.
Appendix B
BKK-HKG-ORD
Million Miler, Gold
Diamond
Golda
Gold
Regular
Regular
Regular
Booking class
Booking fare
Economy
Business/First
Business/First
Business/first
Economy
Economy
Business/first
Promotional Price
Award Booking
Full Fare
Award Booking
Full fare
Promotional Price
Promotional price
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No.
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Appendix A
Fare
$750
$0
$5500
$0
$2900
$800
$3500
Table B1 Historical data on the Qualified Miles (Tier #2)
1
2
3
4
5
6
7
b
Jennie
Tom
Michael
Danny
Ben
Joe
Jane
Routing
Status
SIN-BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD-LAS
BKK-HKG-ORD
BKK-HKG-ORD
BKK-HKG-ORD
Million Miler, Gold
Diamond
Golda
Gold
Regular
Regular
Regular
Qualified miles
2012
2013
2014
YTD-2015b
Lifetime
25,000
123,000
—
30,000
—
2500
40,000
12,000
109,000
—
35,000
—
10,500
39,500
9000
110,000
—
51,000
—
45,000
41,000
20,000
30,000
—
—
—
50,000
25,000
1,530,000
550,000
—
230,000
—
120,000
160,000
Premier Status Match Challenge program.
As of May 2015.
No
a
Name
tC
No.
Appendix C
Table C1 Revenue, Profit Score, and Frequency Trend (Tier #3)
Name
Do
No.
1
2
3
4
5
6
7
Jennie
Tom
Michael
Danny
Ben
Joe
Jane
Mile
Revenue
Lifetime
Lifetime
YTD
Time as loyalty (Years)
1,530,000
550,000
—
230,000
—
120,000
160,000
$198,000
$130,000
$5500
$55,000
$2900
$15,000
$60,000
$2500
$7090
$0
$0
$0
$6250
$9500
20
5
1
7
1
4
4
Fare
Profit score
Frequency trend
$750
$0
$5500
$0
$2900
$800
$3500
Low
Medium
High
Medium
Medium
Low
High
Up
Same
—
Down
—
Up
Up
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Do
Jennie
Tom
Michael
Danny
Ben
Joe
Jane
1
2
3
4
5
6
7
No. Name
Web/mobile
app
Corporate
booking
Travel
agency
With
fees
Without
fees
Frequency of
changing or
canceled flights
Frequency of flying with alliance partners
(award ticket)
-
High
-
High
High
Cost to
serve
t
V. Low
V. Low
rP
os
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Loyalty plus award call
center
tC
The airline call
center
No
Booking channels
Table D1 Booking Channel and Cost to Serve (Tier #4)
Appendix D
Data analysis and decision making
J Chongwatpol
31
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Data analysis and decision making
J Chongwatpol
32
Social Media
Thai ABC Airline
(Facebook and Twitter)
Joe and Tom usually
bought the fight tickets
based on the
deals/promotions posted
in the social media.
No Data
(Jennie, Michael, and Jane)
The airline did not have sufficient
information whether Jennie, Michael,
and Jane actually followed the
airline’s social media site.
Ben used social media to
communicate with her fan
clubs about her schedule
and events. However, she
also used this channel to
complain about any
incidents happening during
her trip, such as bad service
at a hotel or delayed flight
as in this case study.
Danny’s Blog
“Travel More with Less”
As a blogger, Dan significantly provided reviews on deals,
promotions, locations, hotels, and airlines he’d recently
experienced and or visited. He established the website
“www.travelmorewithless.com” in 2002, followed by
Facebook and Twitter in the late 2008.
Do
No
tC
Figure E1 The impact of social media (tier #5).
Ben’s Facebook and
Twitter
op
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Good Followers
(Joe and Tom)
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Appendix E
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Data analysis and decision making
J Chongwatpol
33
Do
No
tC
Figure F1 Passengers’ behavior on social media.
op
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Appendix F
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Data analysis and decision making
J Chongwatpol
34
Do
No
tC
op
yo
rP
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Appendix G
Figure G1 Potential trips from call center, mobile applications, and web search queries.
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Data analysis and decision making
J Chongwatpol
35
tC
op
yo
rP
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Appendix H
Do
No
Figure H1 Passenger-centric display (Tom).
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[BUS 561 - Management Information System] [2021]
Management Information System (BUS 561)
2nd Semester of 2021
Case Study Presentation and Report
Hand-in date and time
•
•
Presentation due date as scheduled on the course syllabus.
Case study report submission on week 11.
Notes
•
•
•
•
•
•
•
This course project contributes to 30% of the overall course assessment.
The project should carry out by groups of (2-3) students. You should decide on your team by the end of the first class
and submit them to the instructor. Each team member should plan to spend 20 hours total on the project, including
some time in class.
The electronic document in PDF format is required for submission. This is because PDF documents are platformindependent and accordingly can be viewed and printed by a diversity of operating systems and printers.
It would help if you used the Blackboard discussion board as the main place to ask questions you have about the
course assignment and project. However, please feel free to make full use of my office hours at the university.
However, if you have a question, someone else may have a similar one, and every student will possibly benefit from
the answers being available on the course Blackboard system. Besides, please make an effort to answer your
classmates’ questions. In grading your participation in the course project, I will include your contributions to the
discussion board. Nevertheless, you will not be penalized for wrong answers/clarifications during your participation
on the discussion board (or even in class).
It would be best to use online collaboration tools to practice group communications to carry out the project.
The following penalties will be applied to a project that is submitted after the deadline for submission:
− Where the assignment/project is submitted up to one day after the original deadline, 20% of the total marks will
be removed from the final mark;
− Where the assignment/project is submitted more than two days after the original deadline, a mark of zero will be
recorded.
The required identifying information on the cover page (e.g., your name and id, course code and title, and the title of
the project, class section, and the contact information) should show on the submitted document:
− Case study title.
− Team members (e.g., Monira Aloud (id:44444444)).
− Course code and title (e.g., BUS 561: Management Information Systems).
− Class section (e.g., 45685).
− Contact information (e.g., mealoud@ksu.edu.sa ).
− Submission date (e.g., April 13, 2021).
1|Page
[BUS 561 - Management Information System] [2021]
Learning Outcomes
This course project aims to acquire hands-on experience in Management Information Systems (MIS) for organizations and
businesses. At the end of the project, you will have:
•
•
Analyze current issues in MIS and its impact on organizational growth.
Evaluate the implementation effectiveness and efficiency of MIS applications and processes to improve business
functions.
Introduction
This course project follows the Harvard Business School case-based teaching method. It thus depends on cases, which are
used to demonstrate particular aspects of different topics to be studied. Your task is in two folds: presents the case study to
your classmates and answer specific questions regarding these cases through writing a report. The case-based teaching
method is a student-driven; thus, the instructor mainly has a guiding role in delivering the case study's analytical tasks.
Most cases are either analytical or decision cases (or combinations of the two types). Analytical cases offer descriptions
of successes, or failures executives have had. As a result, students can improve their skills in identifying relationships
between system features and outcomes. Decision cases present the fundamental question: What must be done? Similar in
the real world. Nevertheless, the decision-related information presented in these cases is inadequate and partially
inaccurate.
The utilization of the case teaching method is a crucial design element of this course. During the class, the time must
reflect directly into real-world activity: how to analyze, decide, and act. A verity of business schools has established that
the best way to teach these skills is by the case-based approach. Cases are a handy tool in education because they promote
learning through the analysis of real events. They challenge students by offering them real-life business situations and
placing them in the positions of organizational decision-makers.
Business cases provide three different roles. First, they help students build analytical skills in a world where businesses
and technologies are continuously changing. Second, business case discussions support students to build soft skills.
Management is a social art; thus, it involves working with and through others. Third, and possibly most important,
discussing different business cases leads to various ways of thinking—and acting. The case-based approach places the
student in the practice of making decisions.
Project structure
The project will start with an opening meeting (first week) that introduces the project content and the evaluation criteria.
The project requirement is divided into two main deliverables:
•
Case study presentation (10 points).
•
Case study report (20 points).
2|Page
[BUS 561 - Management Information System] [2021]
Technicalities and Deliverables
Below are some points that clarify the requirements and provides some guidelines:
•
Choose one of the case studies available in the KSU LMS and fill out the Google sheet. The instructor will avoid
overlapping selections; first come first serve.
•
Before the presentation day, send the presentation as PDF to the instructor via Blackboard.
•
You will have 40 minutes to present the case to the class and 10 minutes for questions and answers. The time limit is
firmly required. For effective communication, you may prepare PowerPoint slides to support your presentation.
•
You should have a minimum of one breakout session (last for 5-7 minutes). Therefore, you should prepare a set of
questions to be discussed by a group of students during the breakout session.
•
Plan how you will conduct the discussion. You should pose an opening question and give your classmates a few
minutes to participate. Allow your classmates to ask questions or share their viewpoints in class.
•
There will be one presentation per class, starting from week 3.
•
The presentation PowerPoint file should not exceed 30 slides.
•
If you are citing a source or quoting other works, be sure to reference your source using the APA style.
•
Case report number of pages: maximum 10 pages, appendices and list of references not included.
•
Case report content: an overview of the case study, analysis of problems and presentation of solutions. You should
support your analysis with facts and evidence from the case. Most cases will not include all the data and facts that you
might like to have. If needed, make assumptions, and explain them. You are also required to explore relevant
(theoretical or empirical) literature that can be applied to support the case analysis.
•
Style: Typed; layout and structure according to academic standards (page margin normal, font size 11, line spacing
1.5 lines).
Team presentations
During this semester, all students will have to participate in one team presentation of the selected business case. The
presentation should take about 40 minutes (includes time for class and breakout room discussion). The presenting team
will provide a summarization of the case study followed by their viewpoints and recommendations to the case study,
while at the same time making sure that their classmates join and interact with the case discussion.
3|Page
[BUS 561 - Management Information System] [2021]
Writing a case study analysis:
Part I - Preparing the Case
•
•
•
•
Read and analyze the case study thoroughly. Take notes, highlight relevant facts and information, highlight key
problems and solutions.
Focus your analysis. Identify two to five key problems? Why do they exist? How do they impact the organization?
Who is responsible for them?
Uncover possible solutions: review course readings, discussions, theoretical and empirical literature; your experience.
Select the best solution.
Part II- Wiring the Case Report
For writing the case report, you do not need to repeat all the case information and facts to make your viewpoints and
recommendation. Instead, be brief in illustrating these facts and focus on describing your point of view. For your
recommendation and conclusions, write persuasively giving reasons and facts, not just personal impressions. You should
provide evidence to support your statements. You must avoid overgeneralizations (e.g., all, always, everyone, nothing,
never, none, just, most). Therefore, choose terms that most accurately describe the number, extent, and frequency of the
asserting facts.
Once you have gathered the required information, a draft of your case analysis has to include these general sections. Still,
these may vary depending on your analysis directions or your specific case study:
•
•
•
•
•
Introduction
− Identify the key problems and issues in the case study.
− Prepare a case statement where you should summarize the outcome of your analysis in 2-3 sentences.
Background
− Provide background information, relevant facts, and the most critical problems/issues.
Evaluation of the Case
− Outline the different parts of the case study that you are focusing on.
− Evaluate these parts by discussing what is working and what is not working. You are also required to explore
relevant (theoretical or empirical) literature that can be applied to support the case analysis.
− State why these parts of the case study are or are not working well.
Proposed Solution/Changes
− Provide specific and practical solution(s) or changes needed.
− Explain why this solution was chosen.
− Support this solution with strong evidence, such as theories and concepts from class (text readings, discussions,
lectures), scientific research, personal experience.
Recommendations
− Define and discuss specific strategies for accomplishing the proposed solution.
− If applicable, recommend further action to resolve some of the issues.
− What should be done, and who should do it?
4|Page
[BUS 561 - Management Information System] [2021]
•
•
•
Conclusion
Reference
Appendix (if applicable)
Case Studies
Week
Case Study
3
Data Analysis and Decision Making: A Case Study of Re-accommodating
Passengers for an Airline
4
Giving Data A Voice: The Rise of TalkingData
6
Alfie: Working Out a Virtual Fitness Concierge Platform
7
Driving Digital Transformation at the DBS Bank
8
Samsung: The Internet of Things
9
DBS: From the "World's Best Bank" to Building the Future-ready Enterprise
10
Information Systems Acquisition Decisions: Learning Management System of
SolBridge
11
PropertyGuru: Driving AI Powered Real Estate
12
Coda Coffee and bext360 Supply Chain: Machine Vision, AI, IoT, and Blockchain
13
Uber (B) - Uber in Every Major City in the World: The Globalization Challenge
5|Page
BUS 561: Management Information System
Assignment & Project Evaluation Rubric
BUS 561: Management Information System
Student Name:
Student ID:
Student Name:
Student ID:
Comments from the faculty member:
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________ ______________________
Signature of the faculty Member
Monira Aloud
Page 1
BUS 561: Management Information System
Case Study Grading Rubric – BUS 561 @ MBA
Percentage Scale:
Scaled Score:
%
Clear explanation of key strategic issues
20%
• The problems, scope, and seriousness was clearly identified in the
discussions.
• There was a well focused diagnosis of strategic issues and key problems
that demonstrated a good grasp of the company’s present situation and
strategic issues.
• Effective Executive Summary
• Did not waste space summarizing information already found in the case.
0.00 – 57.49%
0.0 – 0.6
Below Standard
Shows little understanding
of the issues, key problems,
and the company’s present
situation and strategic
issues.
57.50 – 76.24%
0.7 – 2.1
Approaching Standard
Shows some understanding
of the issues, key problems,
and the company’s present
situation and strategic
issues.
76.25 - 93.74%
2.2 - 3.5
At Standard
Shows adequate knowledge
of the issues, key problems,
and the company’s present
situation and strategic
issues.
93.75 - 100%
3.6 - 4.0
Exceeds Standard
Shows superior knowledge
of the issues, key problems,
and the company’s present
situation and strategic
issues.
Executive summary
missing or poorly
constructed
Executive summary
inadequate
Executive summary
adequate
Effective Executive
Summary
Valid arguments; analysis of financial performance with relevant
supportive detail
Logically organized, key points, key arguments, and important criteria for
evaluating business strategies were easily identified
Critical issues and key problems that supported the Case Analysis were
identified and clearly analyzed and supported.
Appropriate analysis, evaluation, synthesis for the specific industry
identified
There was complete data on which to base a thorough analysis
Key change drivers underlying the issues were identified.
Synthesis, analysis, and evaluations were clearly presented and
supported in a literate and effective manner.
Conclusions and recommendations are congruent with strategic analysis
Specific recommendations and/or plans of action provided.
Specific data or facts were referred to when necessary to support the
analysis and conclusions.
Recommendations and conclusions were presented and supported in a
literate and effective manner.
20%
Critical issues and key
problems that supported
the Case Analysis were
poorly identified, analyzed,
and supported.
Critical issues and key
problems that supported
the Case Analysis were not
clearly identified, analyzed,
and supported.
Critical issues and key
problems that supported
the Case Analysis were
partially identified,
analyzed, and supported.
Critical issues and key
problems that supported
the Case Analysis were
clearly identified, analyzed,
and supported.
20%
Analysis of key change
drivers and the underlying
the issues inadequate.
Analysis of key change
drivers and the underlying
the issues were not
identified.
Analysis of key change
drivers and the underlying
the issues were partially
identified
Analysis of key change
drivers and the underlying
the issues were clearly
identified
20%
Effective recommendations
and/or plans of action not
provided.
Effective recommendations
and/or plans of action
inadequate.
Effective recommendations
and/or plans of action were
partially provided.
Effective recommendations,
solutions, and/or plans of
action were provided.
Specific data or facts
necessary to support the
analysis and conclusions
was not provided.
Specific data or facts were
not referred when
necessary to support the
analysis and conclusions.
Specific data or facts were
occasionally referred when
necessary to support the
analysis and conclusions.
Specific data or facts were
referred when necessary to
support the analysis and
conclusions.
Monira Aloud
Page 2
BUS 561: Management Information System
Proper organization, professional writing, and logical flow of analysis. APA
formatting
Logically organized, key points, key arguments, and important criteria for
evaluating the business logic easily identified.
Key points were supported with a well thought out rationale based on
applying specific concepts or analytical frameworks to the data provided
in the case.
Proper grammar, spelling, punctuation, 3rd person objective view,
professional writing, and syntax.
Monira Aloud
20%
Key points were poorly
identified and supported
with a well thought out
rationale based on applying
specific concepts or
analytical frameworks to
the data provided in the
case.
Key points were not
identified and supported
with a well thought out
rationale based on applying
specific concepts or
analytical frameworks to
the data provided in the
case.
Key points were partially
identified and supported
with a well thought out
rationale based on applying
specific concepts or
analytical frameworks to
the data provided in the
case.
Key points were clearly
identified and supported
with a well thought out
rationale based on applying
specific concepts or
analytical frameworks to
the data provided in the
case.
Grammar, spelling,
punctuation, professional
writing, and syntax needs
significant improvement
Grammar, spelling,
punctuation, professional
writing, and syntax needs
improvement
Adequate grammar,
spelling, punctuation,
professional writing, and
syntax
Excellent grammar, spelling,
punctuation, professional
writing, and syntax
Page 3
Chapter 2
Fund Accounting
TRUE/FALSE (CHAPTER 2)
1.
Fund accounting promotes control and accountability over restricted resources. True
2.
The basis of accounting determines when transactions and events are recognized. True
3.
If an entity adopts a full accrual basis of accounting, its measurement focus will
automatically be on all economic resources. True
4.
A government may report some of its funds on a full accrual basis. True
5.
Funds divide a government into functional departments. False
6.
General funds are established to account for resources legally restricted for specified
purposes. False
7.
Fiduciary activities only benefit parties other than the government itself. True
8.
The Financial Accounting Standards Board requires all nongovernmental not-for-profit
entities to use fund accounting. False
9.
In addition to preparing fund financial statements, governments should also prepare
consolidated financial statements to provide information on the financial position and
operating results of the government as a single economic entity. True
10. Fiduciary activities should be reported in fund statements, but should be excluded from the
government-wide statements. True
11. At first glance, the government-wide statement of activities bears little resemblance to the
income statement of a business. True
12. In accounting for costs incurred on a major construction project in a capital projects fund,
the construction outlays are reported as expenditures, not capital assets. True
Granof Test Bank Chapter 2
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MULTIPLE CHOICE (CHAPTER 2)
1. What is the primary reason that governmental entities use fund accounting?
a) Fund accounting is required by law.
b) Fund accounting is required by GAAP.
c) Fund accounting promotes control and accountability over restricted resources.
d) Fund accounting promotes better control over operating activities.
2. Basis of accounting determines which of the following?
a) When transactions and events are recognized.
b) What transactions and events will be reported.
c) Where transactions and events will be reported.
d) Why transactions and events will be reported.
3. A fund is
a) A separate legal entity.
b) A separate fiscal and accounting entity.
c) A separate self-balancing set of accounts for inventory purposes.
d) None of the above.
4. Which of the following funds is a fiduciary fund?
a) Permanent fund.
b) Agency fund.
c) Capital projects fund.
d) Debt service fund.
5. When a governmental entity adopts a basis of accounting other than full accrual and a
measurement focus that excludes long-lived assets and liabilities in its governmental fund
types:
a) It is in violation of the law.
b) It is in violation of GAAP.
c) It has reported in accordance with GAAP for governmental fund financial statements.
d) It has the ability to better measure the results of operations.
6. A city receives a donation from a citizen who specifies that the principal must be invested and
the earnings must be used to support operations of a city-owned recreational facility. The
principal of this gift should be accounted for in which of the following funds?
a) Trust fund.
b) Special revenue fund.
c) Permanent fund.
d) Internal service fund.
Granof Test Bank Chapter 2
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7. Which of the following is NOT a governmental fund?
a) City hall debt service fund.
b) City utilities enterprise fund.
c) Gasoline tax special revenue fund.
d) City hall capital projects fund.
8. Which of the following accounts would you least expect to see in a debt service fund?
a) Principal payments.
b) Interest charges.
c) Interest earned.
d) Outstanding balance of the debt being serviced.
9. Which of the following funds is a proprietary fund?
a) Internal service fund.
b) Special revenue fund.
c) Capital projects fund.
d) Permanent fund.
10. Which of the following funds is a governmental fund?
a) Enterprise fund.
b) Debt service fund.
c) Internal service fund.
d) Agency fund.
11. Which of the following activities conducted by a city-owned junior college should be
accounted for in an agency fund?
a) Receipt of tuition payments.
b) Receipt of revenues belonging to the student accounting club.
c) Receipt of state monies appropriated for general operations.
d) Receipt of donations in support of the university’s athletic program.
12. Which of the following transactions should the City of Highland account for in a trust fund?
a) General fund contributions received by the city pension plan.
b) Greens fees received from golfers at the city-owned golf course.
c) Grants received from the Federal government to purchase buses to be used for public
transit.
d) Proceeds of bonds issued to construct a new city hall building.
13. The state collects a gasoline tax that must be used to support highway construction and
maintenance. The gasoline tax revenue should be accounted for in which of the following
funds?
a) General fund.
b) Special revenue fund.
c) Debt service fund.
d) Internal service fund.
Granof Test Bank Chapter 2
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14. The City of San Jose built a new city hall and financed construction by issuing bonds due in
installments over the next 30 years. The bond principal and interest will be paid by a special
tax levied on property in the city. The revenue received from this special tax should be
accounted for in which of the following funds?
a) General fund.
b) Internal service fund.
c) Capital projects fund.
d) Debt service fund.
15. Riverside Golf Course is a city-owned golf course that collects greens fees in amounts
sufficient to cover its expenses. Riverside Golf Course should be accounted for in which of
the following funds?
a) Internal service fund.
b) Enterprise fund.
c) General fund.
d) Special revenue fund.
16. To fulfill the printing needs of its various departments and agencies, the City has established a
Central Print Shop, which bills the various departments and agencies of the city for printing
services rendered. The Central Print Shop should be accounted for in which of the following
funds.
a) Internal service fund.
b) Enterprise fund.
c) General fund.
d) Special revenue fund.
17. Which of the following sections is NOT required in the comprehensive annual financial report
of a city?
a) Financial section.
b) Introductory section.
c) Statistical section.
d) Historical section.
18. The basic financial statements of a city do NOT include which of the following?
a) Government-wide statement of net position.
b) Government-wide statement of activities.
c) Government-wide statement of cash flows.
d) Separate balance sheets for governmental and proprietary funds.
19. Which of the following funds is accounted for on the modified accrual basis of accounting?
a) General fund.
b) Internal service fund.
c) Proprietary fund.
d) Pension trust fund.
20. Which of the following assets would NOT be found in the general fund balance sheet of the
City of Harrison?
a) Cash.
b) Capital assets.
c) Due from special revenue fund.
d) Due from state government.
Granof Test Bank Chapter 2
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21. Which of the following liabilities would NOT be found in the general fund balance sheet of
the City of Marmaduke?
a) Accounts payable.
b) Due to special revenue fund.
c) Deferred revenue.
d) Bonds payable, due in 5 years.
22. For which of the following entities is fund accounting mandated for financial reporting?
a) American Hospital Association.
b) City of New York.
c) Grace Lutheran Church.
d) United Way.
23. The focus of the government-wide statement of activities of the City of West Hills is on
which of the following?
a) Determining the total expenses by natural classification.
b) Determining the total expenses by function.
c) Determining the total revenues by function.
d) Determining the net cost of functions.
24. Which of the following statements is NOT required in the financial reports of a not-for-profit
entity?
a) Statement of net position.
b) Statement of restricted funds.
c) Statement of activities.
d) Statement of cash flows.
25. The primary focus of the statement of activities of a not-for-profit organization is on
determining the net increase/decrease in which of the following?
a) Unrestricted net assets.
b) Temporarily restricted net assets.
c) Permanent net assets.
d) Net assets of the entity taken as a whole.
26. Under the GASB Statement No. 34 reporting model, which of the following is required?
a) Only one set of financial statements, prepared on the full accrual basis of accounting.
b) Only one set of financial statements, prepared on the modified accrual basis of
accounting.
c) Two sets of financial statements. One set views the government as a collection of
separate funds and uses the current financial resources measurement focus and modified
accrual basis of accounting for governmental funds. The other set views the government
as a whole by combining all governmental activities in one column and all business-type
activities in another column and uses the full accrual basis of accounting for both
columns.
d) Two sets of financial statements. One set views the government as a whole and uses the
current financial resources measurement focus and modified accrual basis of accounting.
The other set views the government by function, combines all governmental activities in
one column and all business-type activities in another column, and uses the full accrual
basis of accounting for both columns.
Granof Test Bank Chapter 2
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27. Under the GASB Statement No. 34 reporting model (as amended by GASB Statement No.
63), the government-wide statement of net position will display which of the following?
a) Assets, liabilities, and net position.
b) Assets, liabilities, and fund balances.
c) Assets, liabilities, and fund equity.
d) Assets, liabilities, and owners' equity.
28.
Under the GASB Statement No. 34 reporting model, the focus of the government-wide
statement of activities is on which of the following?
a) Program revenues and general revenues.
b) Program revenues and expenses.
c) Net income.
d) The net cost of each of the government’s main functions and programs.
29.
A not-for-profit entity's statement of net assets will NOT report which of the following?
a) Net assets invested in capital assets, net of related debt.
b) Capital assets.
c) Temporarily restricted net assets.
d) Permanently restricted net assets.
30.
Which of the following funds of Chessie City would be consolidated to form the
governmental activities column in the city’s government-wide financial statements?
a) General fund, special revenue fund, and agency fund.
b) General fund, debt service fund, and capital projects fund.
c) General fund, enterprise fund, and fiduciary fund.
d) Enterprise fund and internal service fund.
31.
Which fund type would all governments normally include in their fund financial
statements?
a) Capital projects funds
b) Special revenue funds
c) General fund
d) Fiduciary funds
32.
Under the GASB Statement No. 34 reporting model, fund financial statements include
separate sets of financial statements for:
a) Each major function of the government.
b) Governmental funds, proprietary funds, and fiduciary funds.
c) Governmental funds, enterprise funds, and internal service funds.
d) Governmental funds, special revenue funds, and debt service funds.
Granof Test Bank Chapter 2
Page 6
33.
When a fax machine purchased by a governmental entity is received, it should be recorded
in the general fund as a(n)
a) Expense
b) Encumbrance
c) Expenditure
d) Capital asset
34.
Which of the following is NOT included in the financial section of a comprehensive
annual financial report?
a) Required supplementary information
b) Letter of transmittal
c) Financial statements
d) Notes to the statements
35.
During the current fiscal year, Mountain View City’s water utility, an enterprise fund,
rendered billings for water supplied to the general fund. Which of the following accounts
should be debited by the general fund?
a) Transfer-out to enterprise fund
b) Due to water utility enterprise fund
c) Appropriations
d) Expenditures
36.
Lakeside Art Center, a nongovernmental not-for-profit entity, receives a contribution of
$5 million. The donor stipulates that the contribution must be used to acquire paintings
by local artists. Lakeside should classify the contribution as
a) Permanently restricted
b) Temporarily restricted
c) Committed
d) Unrestricted
37.
Wigmore City receives a donation of $10 million from a wealthy citizen who stipulates
that the funds be used to acquire and install park benches in the city's Veterans Park. The
city should report the donation as an increase in
a) Unassigned fund balance
b) Assigned fund balance
c) Committed fund balance
d) Restricted fund balance
38.
The accounting equation applied by state and local governments is
a)
Assets + deferred inflows of resources - liabilities = fund balance
b)
Assets + deferred outflows of resources - liabilities - deferred inflows of
resources = fund balance
c)
Assets + deferred inflows of resources = liabilities + deferred outflows of
resources + fund balance
d)
Assets - deferred outflows of resources - liabilities + deferred inflows of
resources = fund balance
Granof Test Bank Chapter 2
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PROBLEMS (CHAPTER 2)
1. Assume that the City of Fort Smith maintains its books and records in a manner that facilitates
the preparation of fund financial statements. For each of the following events indicate in
which fund(s) of the city the event would be recorded and justify your fund selection.
a. The city collected property taxes levied for the general operations of the city.
General fund. The general fund is used to account for the general activities of a
governmental entity.
b. The city collected property taxes levied to pay principal and interest on bonds issued
several years in the past to construct a new fire station.
Debt service fund. The debt service fund is used to account for payments of principal
and interest on debt incurred to finance general government activities.
c. The city collected property taxes levied on a specific area of the city for the purposes of
providing more frequent snow removal than is enjoyed by the rest of the city.
Special revenue fund. The proceeds may only be used for snow removal. By accounting
for the proceeds and for the expenditure of the proceeds in a special revenue fund the
entity can demonstrate that it used the resources for the required purpose.
d. The city sold bonds to finance the construction of a new city hall.
Capital projects fund. A new city hall is a general government asset. The capital projects
fund is used to account for the resources held for the purpose of construction and/or
acquisition of major capital facilities. It is also used to account for expenditures for the
construction and/or acquisition of those assets.
e. The city sold bonds to finance major renovations at the city-owned electric utility.
Enterprise fund. Normally, governments use enterprise funds to account for activities
for which there are comparable activities in the private sector. If the electric utility is
accounted for in an enterprise fund, all capital assets and all long-term debt associated
with those activities will be accounted for in the enterprise fund.
f. The city purchased a street sweeping machine.
General fund. The general fund is used to account for the general activities of a
government. However, only the expenditure for the machine would be reported in this
fund. The machine (a capital asset) is reported only in the government-wide financial
statements.
2. Assume that the City of Amber maintains its books and records in a manner that facilitates
the preparation of fund financial statements. Amber City maintains a general fund, a capital
projects fund, and a special revenue fund. During the current fiscal year, the city engaged in
the following transactions. Record all transactions. Be sure to indicate clearly the fund in
which the entry is made.
a.
The city sold bonds, face value $26 million, at par to finance the construction of a new
city hall.
a.
CAPITAL PROJECTS FUND
Cash
$26 million
Proceeds from borrowing
$26 million
b. The city purchased two new police cars at a total cost of $50,000.
GENERAL FUND
Vehicle expenditure
$ 50,000
Cash
Granof Test Bank Chapter 2
$ 50,000
Page 8
c.
The city collected $8,000 in taxes dedicated for the eradication of noxious weeds.
c.
SPECIAL REVENUE FUND
Cash
$ 8,000
Tax revenue
$ 8,000
d. The city spent $6,000 on pesticides for noxious weeds.
d.
SPECIAL REVENUE FUND
Expenditures for weeds
$ 6,000
Cash
$ 6,000
e.
The city acquired a new tractor for $80,000. The city paid $20,000 in cash and signed a
note that is due in three years.
e.
GENERAL FUND
Tractor expenditure
$80,000
Proceeds of note
$ 60,000
Cash
20,000
3. Assume that Blackfoot County maintains its books and records in a manner that facilitates the
preparation of fund financial statements. The county engaged in the following transactions
during the current month. Prepare journal entries in the general fund to record these events.
a. Paid salaries to county employees, $100,000.
a. Expenditures-salaries
$100,000
Cash
$100,000
b. Borrowed $35,000 on a three-year note from a local bank to buy a county car.
b. Cash
$ 35,000
Proceeds of notes
$ 35,000
c. Purchased the county car for $35,000.
c. Automobile expenditure
$ 35,000
Cash
$ 35,000
d. Made a $7,000 payment on outstanding accounts payable.
d. Accounts payable
$ 7,000
Cash
$ 7,000
e. Collected $3,500,000 of the current property tax levy.
e. Cash
$3,500,000
Property tax revenue
$3,500,000
f. Received a $50,000 grant from the State to support general government activities.
f. Cash
$ 50,000
Grant revenue
$ 50,000
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4. Kayla Township issued the following bonds during the year:
Ten-year bonds to acquire equipment for a data
processing service reported in an internal service fund
Bonds to construct a new police station
Bonds to increase the capacity of the water treatment
plant reported in an enterprise fund
$2,000,000
$9,000,000
$4,800,000
a. The amount of debt reported in the Township’s general fund is:
1.
$0
2.
$9,000,000
3.
$11,000,000
4.
$15,800,000
b. The township should report depreciation expense on related new capital assets in:
1.
General fund
2.
Enterprise fund
3.
Enterprise and internal service funds
4.
Capital projects fund
c. The bonds issued to construct the new police station should be reported as:
1.
Debt proceeds in the general fund
2.
Long-term debt in a debt service fund
3.
Debt proceeds in a capital projects fund
4.
None of the above
d. In accordance with bond covenants the township sets aside $1,000,000 to help ensure that
it is able to meet its first payment of principal and interest on the police station debt due one
year from the date the bonds were issued. The amount of liability that the township should
report in its debt service fund is:
1.
$0
2.
$1,000,000
3.
$9,000,000
4.
$8,000,000
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5. The Chessie Foundation, a newly established governmental entity, engaged in the following
transactions:
1. A donor made a $1,000,000 pledge, giving the foundation a legally enforceable 90-day
note for the full amount.
No entry necessary — no cash involved.
2. The same donor paid $500,000 of the amount pledged.
Cash
$ 500,000
Contribution revenues
$ 500,000
To record the partial collection of the note
3. The foundation purchased a building for $900,000, paying $90,000 in cash and giving a
ten-year mortgage for the balance. The building has a 25-year useful life. The foundation
charges a half-year’s depreciation for all assets in the year they are acquired.
Building acquisition expenditure
$ 90,000
Cash
$ 90,000
To record the cash paid to acquire the building
4. The foundation hired five employees. By year-end, these employees have earned
$10,000 in salaries and wages for which they have not been paid.
The foundation accounts for its activities in a single fund.
No entry necessary — no cash involved
Focus on cash plus current financial resources
a. Prepare journal entries to record the transactions, making the following alternative
assumptions as to the fund’s measurement focus:
Cash only
Cash plus other current financial resources (cash plus short-term receivables less
short-term payables)
All economic resources
b. Based on your entries, prepare appropriate operating statements and balance sheets for
the organization.
No entry necessary — no cash involved
6. Katerah City maintains the following funds:
1.
2.
3.
4.
5.
6.
7.
8.
General
Special revenue
Capital projects
Debt service
Enterprise
Investment trust
Permanent
Agency
For each of the following transactions, indicate which fund would most likely be used to
report the transaction:
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a. The city collects $1 million of taxes for an independent fire district located within the
city.
Agency
b. The city spends $1.2 million on street maintenance using the proceeds of a city gas tax
dedicated for road and highway maintenance and improvements.
Special revenue
c. The city receives a bequest of $1.5 million. The donor’s will, requires that the principal
amount be invested in perpetuity and that the earnings on the investment be used to maintain
a city park to be renamed for the donor.
Permanent
d. The city collects water and sewer fees of $4.2 million.
Enterprise
e. The city pays $4 million to a contractor for work on a new bridge.
Capital projects
f. The city receives $1.3 million to invest on behalf of the county.
Investment trust
g. The city pays its police officers wages of $325,000.
General
h. The city pays $2.2 million in bond interest on its general obligation debt.
Debt service
Granof Test Bank Chapter 2
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7. The Geneva Housing Authority, a governmental entity, accounts for its activities on a
modified accrual basis of accounting. In the current period, it reports the following transactions:
The Authority issued $2.5 million in long-term bonds.
The Authority purchased 4 acres of land for $500,000 in cash.
It sold one of the 4 acres of land for $125,000 in cash.
It made a $325,000 payment on the debt, consisting of $75,000 of interest and $250,000
of principal.
It lost a lawsuit filed by one of its renters and was ordered to pay $1 million in damages
over 5 years. It made its first cash payment of $200,000.
1. Prepare journal entries to record each of these transactions in the general fund.
Cash
$2,500,000
Proceeds from borrowing
$2,500,000
To record the issuance of bonds
2. Based on your entries, prepare a balance sheet and statement of revenues, expenditures,
and changes in fund balance for the general fund.
Expenditure for land
$ 500,000
Cash
$ 500,000
To record the purchase of land
3. Comment on how these statements capture the Authority’s economic resources and
obligations.
Cash
$ 125,000
Proceeds from sale of land
$ 125,000
To record sale of land
4. Comment on the extent to which the statement of revenues, expenditures, and changes in
fund balances captures the Authority’s costs of services.
Repayment of bonds (expenditure)
$ 325,000
Cash
$ 325,000
To record repayment of bonds
5. When the Authority prepares GAAP financial statements based on GASB Statement No.
34, what assets and liabilities would be added in the Authority’s government-wide
Statement of Net Assets? What gains and losses would be added in its government-wide
Statement of Activities?
Legal claims (expenditure)
$ 200,000
Cash
$ 200,000
To record payment of judgment
8. The newly established Environmental Council (a nongovernmental not-for-profit
organization) uses two funds for internal reporting purposes. The general fund is used to record
day-to-day operating transactions. A building fund is used to accumulate resources for a new
building to house the Council’s operations. Both funds are reported using the accrual basis of
accounting. In its first year, the Council engaged in the following transactions:
1. It received cash contributions of $500,000. Donors stipulate that $100,000 of this amount
must be used for the new building.
2. It incurred operating payroll costs of $200,000, of which $180,000 is paid in cash.
3. It earned $1,000 in interest (paid in cash) on investments restricted to the acquisition of
the new building.
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4. It transferred $25,000 from its general fund to the building fund.
5. It paid $15,000 in fees (accounted for as expenses) for architectural drawings for the
proposed building.
a. Prepare journal entries to record the transactions. Be sure to indicate the fund in which
the entry would be made.
b. Prepare a statement of revenues, expenses, and other changes in fund balances and a
balance sheet. Use a two-column format, one column for each of the Council’s two
funds.
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ESSAYS (CHAPTER 2)
1. Why do governments and not-for-profit entities use fund accounting?
1. Government and not-for-profit entities use fund accounting to demonstrate accountability.
By segregating the assets, entities are able to demonstrate clearly that the assets were used for
the intended purposes. By segregating certain activities, governments can better control the
revenues and expenditures/expenses of these activities. It would not be uncommon for
governments and not-for-profit entities to segregate assets whose use is restricted by outside
donors, nor would it be uncommon for these entities to segregate the revenues and expenses
of activities that are supposed to be self-supporting.
2. Governments use the modified accrual basis of accounting and a current financial resources
measurement focus when presenting the governmental fund financial statements but they use
the accrual basis of accounting and the flow of economic resources for the government-wide
financial statements. What is a basis of accounting? What is measurement focus? How does
the selection of one affect the selection of the other?
2. Basis of accounting determines WHEN transactions and events are recognized. Measurement
focus determines WHAT is being reported upon. If an entity selects the cash basis of
accounting, its measurement focus will necessarily be upon the flow of cash. If an entity
selects full accrual accounting its measurement focus will, of course, be upon flow of
economic resources, including noncurrent as well as current resources. An entity must decide
WHAT assets and liabilities it wants to display (e.g., cash, current financial resources, or all
economic resources) and choose a basis of accounting that will enable the entity to display
those assets and liabilities.
3. For what purposes do governmental entities use agency funds? What are the distinguishing
characteristics of agency funds?
Agency funds are used to account for assets that a government holds temporarily on behalf of
other governments, private organizations, or individuals. Agency funds are mechanisms for
segregating, on financial reports, assets held for others, to demonstrate accountability and
stewardship. Because agency funds are merely lists of assets held for others, with a
corresponding obligation to those parties, agency funds have no operating accounts and no equity
accounts. The accounting equation is assets = liabilities.
4. The basic financial statements for Ammon City contain the following statements. For each
statement identify the appropriate measurement focus and basis of accounting.
a.)
b.)
c.)
d.)
e.)
f.)
Government-wide statement of position
Government-wide statement of activities
Balance sheet—governmental funds
Statement of revenues, expenditures, and changes in fund balance—governmental funds
Statement of net assets—proprietary funds
Statement of revenues, expenses, and changes in fund net assets—proprietary funds
b.)
c.)
d.)
e.)
f.)
Economic resources; accrual
Economic resources; accrual
Current financial resources; modified accrual
Current financial resources; modified accrual
Economic resources; accrual
Economic resources; accrual
a.)
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5. The activities of an internal service fund are presented on the statement of revenues, expenses,
and changes in fund net assets in the fund financial statements. Why? 6. What are the three
categories of restrictions that must be used to report the resources of not- for-profit
organizations? Who must impose the restrictions in order for them to be reported?
The activities of an internal service fund are presented on thestatement of revenues, expenses, and
changes in fund net assets because they are part of the proprietary fund category. Proprietary
funds are reported using the economic resources measurement focus and the accrual basis of
accounting to provide information about the full cost of the activities reported in those funds.
7. Why is long-term debt generally not reported in a government’s debt service funds?
Generally long-term debt is not reported in the debt service fund because these funds are
maintained on the modified accrual basis of accounting to account only for the current
financial resources that will be used to pay the interest and principal on long-term debt. These
resources are set apart from other resources because they can only be used for their specified
purposes. The principal and interest payments on the long-term debt that are currently due
and payable are reported in the debt service fund that will service the long-term debt.
8. What are fiduciary funds? Why don’t governments incorporate (consolidate) these funds into
their government-wide financial statements?
Fiduciary funds are used to account for resources held by the government as either a trustee (a
party that administers property for a beneficiary) or an agent (one who acts on behalf of
another). Governments do not incorporate (consolidate) fiduciary funds into their
government-wide financial statements because they benefit only outsiders and a government
cannot expect to have use of their resources.
9. The City of Orlando maintains funds for debt service, capital projects, and special revenues.
It does not, however, maintain funds for police, recreation, and general administration. Why
do you suppose it does not maintain a separate fund for each of its functional areas?
9. Funds are not maintained for organizational units. They are established only for resources
that are restricted. Typically the resources for the key functional areas are provided by
unrestricted tax revenues.
10. GASB Statement No. 34 mandates that the government reconcile total governmental fund
balances per the fund balance sheet with net assets of governmental activities per the
government-wide statements. What are likely to be the two largest reconciling items for most
major cities? Why?
Long-lived assets and long-term liabilities. These are recorded on the government-wide
statements but not the fund statements as the former are on a full accrual basis but the latter
are on a modified accrual basis
11. What are the elements of the financial statements of state and local governments? Which
elements relate to statements of net position? How do these elements differ from those
reported by businesses?
11. The elements of the financial statements of state and local governments are: assets,
liabilities, outflows of resources, inflows of resources, deferred outflows of resources,
deferred inflows of resources, and net position. Acceptable formats for reporting the elements
relating to statements of net position are: Assets + deferred outflows of resources = liabilities
+ deferred inflows of resources + net position (or fund balance) or alternatively, Assets +
deferred outflows of resources – liabilities – deferred inflows of resources = net position (or
fund balance). Thus, deferred outflows and inflows of resources are reported in separate
categories from assets and liabilities. In contrast, businesses generally use the reporting
format: assets – liabilities = owners’ equity. Although businesses do distinguish deferred
Granof Test Bank Chapter 2
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resource flows, such as deferred revenues and deferred costs, from current resources flows,
they report deferred resources flows among, respectively, liabilities and assets rather than in
separate categories.
12. Compare a restricted fund balance with a committed fund balance. Give an example of when
a government might use each classification.
12. For a fund balance to be restricted, the constraints on the use of resources must be imposed
by parties external to the government, such as creditors, bondholders, or grant providers, or
through constitutional provisions, enabling legislation, or laws or regulations of other
governments. For example, a federal agency provides grants to a state government for use
only to enhance state highway patrol activities. In this case, fund balance should be restricted
because the constraint is imposed by a party (federal agency) that is external to the state
government. Restrictions on resources may only be changed or removed with the consent of
the providers.
In contrast, committed fund balances comprise resources that must be used for specific purposes
based on constraints imposed by formal action of the government’s own highest level of
decision-making authority. For example, the governing body of a state college commits
resources to improve the provision of student health services. In this case the constraint is
imposed by the government’s own highest-level authority, not by a party external to the
government. The constraints governing commitments can only be changed or removed by the
same formal action that originally imposed them.
Granof Test Bank Chapter 2
Page 17
Chapter 3
Issues of Budgeting and Control
TRUE/FALSE (CHAPTER 3)
1. Capital budgets focus on plans for the acquisition and construction of fixed assets. T
2. The accounting cycle for most governments is two to three years, consistent with the terms of elected
officials.
F
3. Most budgets are prepared on a cash or modified cash basis. T
4. Neither the GASB nor the FASB sets standards for budgetary accounting. T
5. State and local governments must prepare their GAAP budgetary comparisons on the modified
accrual basis of accounting.
F
6. When budgets are integrated into a government’s accounting system, estimated revenues are debited.
T
7. Encumbrances and expenditures both reduce total fund balances of state and local governments. F
8. Not-for-profit budgets focus first on revenues and secondarily on expenditures. T
9. State and local governments’ budget-to-actual comparisons present both original and final budget
amounts. T
10. Cash-basis budgets help governments focus on interperiod equity.
F
11. Reserve for encumbrances accounts should be closed at year-end.
F
12. Capital budgets concentrate on long-lived assets. T
Granof Test Bank Chapter 3
Page 1
MULTIPLE CHOICE (CHAPTER 3)
1.
Which of the following is NOT a function of a budget in the governmental environment?
a) Planning.
b) Organizing.
c) Controlling.
d) Evaluating.
2.
For which of the following funds would flexible budgeting be most valuable?
a) Special revenue fund.
b) Capital projects fund.
c) Agency fund.
d) Enterprise fund.
3.
Property taxes levied on the citizens of the Hill County would most appropriately be budgeted in
which of the following budgets?
a) Operating budget.
b) Capital budget.
c) Flexible budget.
d) All of the above.
4.
Expenditures should be budgeted by “character.” An example of a character classification would be
a) Current expenditures.
b) Salaries.
c) Public Safety.
d) Police Department.
5.
Which of the following is a primary benefit of a performance budget?
a) It facilitates control by establishing rigid spending mandates.
b) It encourages accomplishment of objectives by associating expenditures with outcomes.
c) It encourages planning by requiring management to anticipate every type of expenditure.
d) It provides decision-makers with detailed information.
6.
Which branch of local (city and county) government most commonly prepares the budget?
a) Executive branch.
b) Legislative branch.
c) Judicial branch.
d) None of the above.
7.
An officially adopted budget is generally called
a) An appropriation bill.
b) An operating budget.
c) A capital budget.
d) None...
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