Groupon Case Assignment 2014

Topics: Revenue, Income statement, Generally Accepted Accounting Principles Pages: 14 (5787 words) Published: December 4, 2014
ACTG 630 – Case Assignment
Due: Wednesday, December 3
Please submit one assignment per group. No more than 3 students per group. Read “Growing Pains at Groupon” by Dutta, Caplan and Marcinko (2014) and complete the questions included in the Case Requirements section (beginning on page 238). Instructions for accessing the FASB Codification database:

1. Go to http://aaahq.org/ascLogin.cfm
2. User ID: AAA51526
3. Password: x43AYtX
ISSUES IN ACCOUNTING EDUCATION
Vol. 29, No. 1
2014
pp. 229–245

American Accounting Association
DOI: 10.2308/iace-50595

Growing Pains at Groupon
Saurav K. Dutta, Dennis H. Caplan, and David J. Marcinko

GROWING PAINS AT GROUPON

A

s an undergraduate music major at Northwestern University, Andrew Mason eagerly sought a version of rock music that would fuse punk with the Beatles and Cat Stevens. Little did he imagine that within ten years he would be the CEO of one of history’s fastestgrowing businesses. After Northwestern and faded dreams of rock stardom, Mason, a self-taught computer programmer, was hired to write code by the Chicago firm InnerWorkings. InnerWorkings was founded in 2001 by Eric Lefkofsky, who had built several businesses around call centers and the Internet. In 2006, Lefkofsky became interested in an idea of Mason’s for a website that would act as a social media platform to bring people together with a common interest in some problem— Saurav K. Dutta is an Associate Professor and Dennis H. Caplan is an Assistant Professor, both at University at Albany, SUNY; and David J. Marcinko is an Associate Professor at Skidmore College. We thank the editor, associate editor, and two reviewers for their helpful insights, comments, and suggestions. We also acknowledge our accounting students who completed the case and provided us with valuable feedback. Editor’s note: Accepted by William R. Pasewark

Published Online: August 2013

229

230

Dutta, Caplan, and Marcinko

most often some sort of social cause. Lefkofsky provided Mason with $1 million of capital to develop the concept that became known as ‘‘The Point.’’1 Virtually no one associated with The Point initially envisioned commercial aspirations for the venture. In the fall of 2008, at the height of the financial crisis, ventures with little or no commercial aspirations were in jeopardy. Lefkofsky and Mason faced a decision on how to proceed with The Point. Lefkofsky seized on an idea proposed by a group of users of The Point. This group attempted to identify a number of people who wanted to buy the same product, and then approach a seller for a group discount. Mason had originally mentioned group-buying as one application of The Point, and now Lefkofsky latched onto the concept and pursued it relentlessly. In response, Mason and his employees began a side project that they named Groupon.

The business plan was relatively simple. Groupon offered vouchers via email to its subscriber base that would provide discounts at local merchants. The vouchers were issued only after a critical number of subscribers expressed interest. At that point, Groupon charged those subscribers for the purchase and recorded the entire proceeds as revenue. Subsequently, when the subscriber redeemed the voucher with the merchant, Groupon remitted a portion of the proceeds to the merchant and retained the remainder. For example, a salon might offer a $100 hairstyling in exchange for a $50 Groupon voucher and agree to a 60-40 split of the price. Once a sufficient number of subscribers agreed to the deal, Groupon sold the voucher for $50. After providing the service, the salon would submit the voucher to Groupon and receive $30. Groupon would keep the remaining $20. The idea took off with enthusiastic support from the local media in Chicago. By the end of 2008, it was clear to Lefkofsky and Mason that The Point would become Groupon. Understanding that the key to competitive success would be a massive increase in scale, Lefkofsky pushed...

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Groupon. 2011a. Form S-1: Registration Statement under the Securities Act of 1933. Filed with the SEC on
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Groupon. 2011d. Amendment No. 4 to Form S-1: Registration Statement under the Securities Act of 1933.
Groupon. 2012a. Groupon Announces Revised Fourth Quarter and Full Year 2011 Results, Confirms First
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Groupon. 2012c. Form 10-Q. Filed with the SEC on May 15. Washington, DC: Government Printing Office.
Phillips, T. J., Jr., M. S. Luehlfing, and C. M. Daily. 2001. The right way to recognize revenue. Journal of
Accountancy 191 (6): 39–46.
Securities and Exchange Commission (SEC). 2011a. SEC-generated letter dated June 29. Available at: http://
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and Exchange Commission (SEC). 2011b. SEC-generated letter dated August 19. Available at:
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Steiner, C. 2010. The next web phenom. Forbes 186 (3): 58–62.
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Washingtonpost.com. 2013. Groupon’s CEO writes the best resignation letter ever (March 1). Available at:
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(DealBook)
March 30, 2012 Friday
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Groupon 's Shares Fall on Revision The New York Times Blogs(DealBook) March 30, 2012 Friday
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