• Sold mobile homes in the Southeast US, primarily to low-income individuals who could not afford a traditional single-family home
• Sold most of its installment contracts to financial institutions on a recourse basis
Then identify and explain very briefly what you think are two key success factors, and two major business risks it faces in realizing its strategy?
• Success Factors o Ability to buy in bulk from manufacturers, which allows them to underprice smaller competitors o Growing industry- southeast is the countries fastest growing market for mobile homes, additionally, as the population ages the number of retirees and travelers is growing
• Risk Factors o Low interest rates cause individuals to prepay on their mortgages o If the economy struggles, low income individuals usually hurt the most, which could cause a high percentage of repossessions
Identify the 2 most important areas of accounting policy.
• Accounting for “reserve for credit losses” related to mortgage repayment and repos
• Accounting for finance participation (recourse financing, etc.)- now stated at net present value
Where’s the discretion and judgment?
• Reserve for credit losses requires a lot of estimation by management
• Finance participation- should it be stated at net realizable value?
What is the link to competitive business strategy?
• Reserve for credit losses- related to business strategy because they focus on low income individuals, and if the economy suffers they may see a significant increase in the number of repossessions
• Finance participation- they make a significant amount of money through recourse financing
How well does accounting measure strategic success and business risks, and what are the earnings quality implications of these