ACC 308 Final Project Scenario Overview: You just began a position as a financial accountant at Peyton Approved. In this role, your first task is to prepare the company’s financials for the year-end audit. Additionally, the company is interested in expanding its business within the next year. They would like your support in assessing their ability to meet their goals. Refer to the data below and use the Final Project Workbook that includes the income statement, balance sheet, retained earnings statement and cash flow statement to complete the final project and associated milestones. Peyton Approved Financial Data: Preliminary Financial Statements have already been prepared (2017 statements in the Final Project Workbook). Final adjusting entries have not yet been made. See table for possible adjustments that indicate what will be recorded at 12/31/17 (fiscal year end). Use the following to complete year-to-year documentation and notes for managing depreciation, inventory, and long-term debt. 1. A supplier shipped $3,000 of ingredients on 12/29/17. Peyton receives an invoice for the goods, as well as a bill for freight for $175, all dated 12/29/17. Goods were shipped FOB supplier’s warehouse. 2. At 12/31/17, Peyton has $200 worth of merchandise on consignment at Bruno’s House of Bacon. 3. On 12/23/17, Peyton received $1,000 deposit from Pet Globe for product to be shipped by Peyton in the second week of January. 4. On 12/03/2017, a mixer with a cost of $2,000, accumulated depreciation $1,200, was destroyed by a forklift. As of 12/23/17, insurance company has agreed to pay $700 in January, 2018, for accidental destruction. 5. Note about later borrowing - financials will show loan from parents repaid and use of bank financing. The company is planning to open another location in 2018. Prepare pro forma financials for 2018 for the new location using the following information: Cost of leasing commercial space: $1,500 per month. Cost of new equipment: $15,000, purchased with a long-term note. Use straight line depreciation assuming a seven-year life, no residual value. Use full year’s depreciation for the first year. Cost of hiring and training new employees: three at $25,000 each for the first year. Except as noted below, assets, current liabilities, sales, costs, and expenses are expected to be 80% of the existing store (from preliminary statements) except no stock. Retained earnings = net income. Cash: $7,000. Accounts receivable amount to 4.0 turns (accounts receivable turnover will be 4.0); inventory amount to show 3.0 turns (inventory turnover will be 3.0). No stock will be issued. Retained earnings are to equal net income. Additional financing of $5,000 will be long-term. Add remaining amount needed to balance into accounts payable. For notes to the financial statements and Management Analysis Memo, consider the following: Peyton Approved uses the following accounting practices: • • Inventory: Periodic, LIFO for both baking and merchandise Equipment: Straight line method used for equipment Business Financing Information: Use this information to calculate interest rates and insurance information, and to assess their impact on the company’s financial obligations: • • • 6% interest note payable was made on Jan 31, 2017, and is due Feb 1, 2019. 5-year loan was made on June 1, 2016. Terms are 7.5% annual rate, interest only until due date. Insurance: Annual policy covers 12 months, purchased in February, covering March 2017 to February 2018. No monthly adjustments have been made. ACC 308 Milestone Two Guidelines and Rubric Overview: For Milestone Two, which is due in Module Five, you will create pro forma financial statements, notes to the financial statements, and develop a report for management explaining the impact of pro forma financial statements on the company’s expansion plans, implications of inventory costing, contingent liabilities, and revenue recognition. In your management analysis brief, you will also identify potential issues in interpreting financial statements. Prompt: First, review the Final Project Scenario document and the accompanying workbook. Using your review of the scenario, develop a management analysis brief that addresses the critical elements indicated below. Use information from your accounting workbook to support your claims in the management analysis brief. Note: Milestone Two is a draft of some critical elements of the final project. Note that the management analysis brief informs the management analysis memo in the final project. Specifically, the following critical elements must be addressed: I. Accounting Workbook: Your accounting workbook must include appropriate calculations and statements: A. Create pro forma financial statements for predicting ability to meet future expansion goals. II. Notes to the Financial Statements: Your notes must contain the following: A. Create appropriate notes as year-to-year documentation for managing depreciation, supplies, and inventory. III. Management Analysis Brief: Your management analysis brief should explain financial information to management. Provide evidence from your accounting workbook to support your ideas where applicable. A. Discuss the impact of the pro forma financial statements for predicting ability to meet future expansion goals. B. Describe the implications of inventory costing, contingent liabilities, and revenue recognition. C. Identify potential issues in interpretation of financial information, providing examples to support your ideas. Rubric Guidelines for Submission: Your accounting workbook must be submitted as a Microsoft Excel document, notes to the financial statement must be submitted in a Microsoft Word document, and your management analysis brief should be a 1- to 2-page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. Critical Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value Accounting Workbook: Creates pro forma financial Pro Forma Financial statements for predicting ability Statements to meet future expansion goals Creates pro forma financial statements but calculations contain inaccuracies Does not create pro forma financial statements 18 Notes to the Financial Creates appropriate notes as Statements: Year-to- year-to-year documentation for Year Documentation managing depreciation, supplies, and inventory Creates appropriate notes as year-to-year documentation for managing depreciation, supplies and inventory, but notes are cursory or illogical Does not create appropriate notes as year-to-year documentation for managing depreciation, supplies, and inventory 18 Management Analysis Discusses the impact of pro Brief: Pro Forma forma financial statements for Financial Statements predicting ability to meet future expansion goals Discusses the impact of pro Does not discuss the impact of pro forma financial statements for forma financial statements predicting ability to meet future expansion goals but explanation is cursory or contains inaccuracies 18 Describes the implications of inventory costing, contingent liabilities, and revenue recognition, but description is cursory or illogical 18 Management Analysis Brief: Inventory Costing, Contingent Liabilities, and Revenue Recognition Describes the implications of inventory costing, contingent liabilities, and revenue recognition Management Analysis Identifies potential issues in Brief: Issues in interpretation of financial Interpretation information, providing examples to support ideas Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Does not describe the implications of inventory costing, contingent liabilities, and revenue recognition Identifies potential issues in Does not identify potential issues interpretation of financial in interpretation of financial information but identification or information examples provided are cursory or illogical 18 Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas 10 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Total 100% Southern New Hampshire University ACC 308 - Intermediate Accounting II MILESTONE 1 (Due in Module 3) For full instructions see Instructions MILESTONE 2 (Due in Module 5) For full instructions see Instructions Instructions Milestone 1 1. Trial Balance Using the Peyton Approved financial data, create: Adjusting Entries Adjusted Trial Balance 2. 1. Pro Forma Financial Statements Using the given Pro Forma information, create: Pro Forma Income Statement Pro Forma Balance Sheet Revised Financial Statements Using the Trial Balance and Preliminary Revised Balance Sheet Revised Income Statement Revised Retained Earnings Statement Revised Statement of Cash Flows 3. Instructions Milestone 2 Ratio Analysis Using the financial statements from 2015, Current Ratio (Working Capital ) Quick Ratio A/R Turnover Inventory Turnover Gross margin Return on Sales Return on Equity Return on Assets Remember the written portion of the Remember the written portion of the Module 5) Southern New Hampshire University ACC 308 - Intermediate Accounting II INSTRUCTIONS FOR MILESTONE 1 (Due Module 3) IMPORTANT NOTE: Make sure to completely review the Rubric for Milestone 1 Use the data from this Milestone and begin working on your final presentation due in Final Project (Module 7) ITEMS TO COMPLETE FOR THIS MILESTONE (Blue Tabs) : GENERAL You just began a position as a financial accountant at Peyton Approved. In this role, your first task is to prepare the company’s financials for the year-end audit. Additionally, the company is interested in expanding its business within the next year. They would like your support in assessing their ability to meet their goals. TRIAL BALANCE 2017 TAB Using the Peyton Approved financial data (see bottom of page): Create the necessary adjusting journal entries. Use the REF column to reference the entry to each event Complete the adjusted trial balance REVISED FINANCIAL STATEMENTS Using the preliminary financial statements (yellow tabs) and the Trial Balance 2017, prepare the following statements: Balance Sheet (BS 2017 Revised tab) Income Statement (IS 2017 Revised tab) Retained Earnings Statement (RE 2017 Revised tab) Statement of Cash Flows (CF 2017 Revised tab) RATIO ANALYSIS Using the revised 2017 financial statements, 2016 financial statements (orange tabs), and 2015 financial statements (orange tabs), prepare a ratio analysis with the following ratios: Current Ratio (Working Capital ) Quick Ratio A/R Turnover Inventory Turnover Gross margin Return on Sales Return on Equity Return on Assets PEYTON APPROVED FINANCIAL DATA Preliminary Financial Statements have already been prepared (2017 statements in the Final Project Workbook). Final adjusting entries have not yet been made. See table for possible adjustments that indicate what will be recorded at 12/31/17 (fiscal year end). Use the following to complete year-to-year documentation and notes for managing depreciation, inventory, and long-term debt. 1. A supplier shipped $3,000 of ingredients on 12/29/17. Peyton receives an invoice for the goods, as well as a bill for freight for $175, all dated 12/29/17. Goods were shipped FOB supplier’s warehouse. 2. At 12/31/17, Peyton has $200 worth of merchandise on consignment at Bruno’s House of Bacon. 3. On 12/23/17, Peyton received a $1,000 deposit from Pet Globe for product to be shipped by Peyton in the second week of January. 4. On 12/03/2017, a mixer with cost of $2,000, accumulated depreciation $1,200, was destroyed by a forklift. As of 12/23/17, insurance company has agreed to pay $700 in January, 2018, for accidental destruction. 5. Note about later borrowing financials will show loan from parents repaid and use of bank financing. HOME PEYTON APPROVED TRIAL BALANCE As of December 31, 2017 Cash Accounts Receivable Other Receivable - Insurance Baking Supplies Merchandise Inventory Consignment Inventory Prepaid Rent Prepaid Insurance Misc. Supplies Baking Equipment Accumulated Depreciation Customer Deposit Accounts Payable Wages Payable Interest Payable Notes Payable Common Stock Beginning Retained earnings Dividends Bakery Sales Merchandise Sales Cost of Goods Sold - Baked Cost of Goods Sold - Merchandise Rent Expense Wages Expense Misc. Supplies Expense Business License Expense Misc. Expense Depreciation Expense Insurance Expense Advertising Expense Interest Expense Telephone Expense Gain/Loss on disposal of equipment Unadjusted trial balance Dr Cr 67,520.04 68,519.91 ref 3 4 1 15,506.70 1,238.07 2 2,114.55 2,114.55 170.49 14,000.00 1,606.44 4 20,262.11 3,383.28 211.46 5,000.00 20,000.00 50,144.84 105,000.00 327,322.55 1,205.64 105,834.29 859.77 24,549.19 10,670.72 3,000.46 2,045.77 1,363.84 677.86 1,091.08 1,549.74 818.31 490.98 4 429,136.32 429,136.32 N APPROVED L BALANCE cember 31, 2017 Instructions Milestone 1 Adjusting entries Dr Cr 1,000.00 ref 700.00 3,175.00 200.00 2 2,000.00 4 1,000.00 3,175.00 3 1 200.00 1,200.00 100.00 6,375.00 6,375.00 Adjusted trial balance Dr Cr 68,520.04 68,519.91 700.00 18,681.70 1,038.07 200.00 2,114.55 2,114.55 170.49 12,000.00 406.44 1,000.00 23,437.11 3,383.28 211.46 5,000.00 20,000.00 50,144.84 105,000.00 327,322.55 1,205.64 105,834.29 859.77 24,549.19 10,670.72 3,000.46 2,045.77 1,363.84 677.86 1,091.08 1,549.74 818.31 490.98 100.00 432,111.32 432,111.32 - - Preliminary Peyton Approved Balance Sheet As of December 31, 2017 Assets Current Assets: Cash Accounts Receivable Baking Supplies Merchandise Inventory Prepaid Rent Prepaid Insurance Misc. Supplies Liabilities 67,520.04 68,519.91 15,506.70 1,238.07 2,114.55 2,114.55 170.49 Total Current Assets Long Term/Fixed Assets: Baking Equipment Accumulated Depreciation Net Fixed assets Total Assets: 157,184.31 14,000.00 -1,606.44 12,393.56 169,577.87 oved eet 31, 2017 Liabilities and Owners' Equity Current Liabilities: Accounts Payable 20,262.11 Wages Payable 3,383.28 Interest Payable 211.46 Total Current Liabilities 23,856.85 Long Term Liabilities: Notes Payable Total Long Term Liabilities: 5,000.00 Total Liabilities: Common Stock Retained Earnings 5,000.00 28,856.85 20,000.00 120,721.02 Total Equity 140,721.02 Total Liabilities & Equity 169,577.87 Peyton Approved Balance Sheet As of December 31, 2017 Assets Current Assets: Cash Accounts Receivable Baking Supplies Merchandise Inventory Prepaid Rent Prepaid Insurance Misc. Supplies Other Receivable - Insurance Consignment Inventory Liabiliti 68,520.04 68,519.91 18,681.70 1,038.07 2,114.55 2,114.55 170.49 700.00 200.00 Total Current Assets 162,059.31 Long Term/Fixed Assets: Baking Equipment 12,000.00 Accumulated Depreciation -406.44 Net Fixed assets 11,593.56 Total Assets: 173,652.87 Approved e Sheet mber 31, 2017 Instructions Milestone 1 Liabilities and Owners' Equity Current Liabilities: Accounts Payable 23,437.11 Wages Payable 3,383.28 Interest Payable 211.46 Customer Deposit 1,000 Total Current Liabilities Long Term Liabilities: Notes Payable Total Long Term Liabilities: 28,031.85 5,000.00 5,000.00 Total Liabilities: Common Stock Retained Earnings 33,031.85 20,000.00 120,621.02 Total Equity 140,621.02 Total Liabilities & Equity 173,652.87 - Instructions Milestone 1 Preliminary Peyton Approved Income Statement For Year Ended 12/31/2017 Bakery Sales Merchandise Sales Total Revenues Cost of Goods Sold - Baked Cost of Goods Sold - Merchandise Total Cost of Goods Sold Gross Profit $ 327,322.55 1,205.64 328,528.19 105,834.29 859.77 106,694.06 221,834.13 Operating Expenses: Rent Expense Wages Expense Misc. Supplies Expense Business License Expense Misc. Expense Depreciation Expense Insurance Expense Advertising Expense Interest Expense Telephone Expense Total Operating Expenses: Net Income 24,549.19 10,670.72 3,000.46 2,045.77 1,363.84 677.86 1,091.08 1,549.74 818.31 490.98 46,257.95 175,576.18 Peyton Approved Income Statement For Year Ended 12/31/2017 Bakery Sales Merchandise Sales Total Revenues Cost of Goods Sold - Baked Cost of Goods Sold - Merchandise Total Cost of Goods Sold Gross Profit $ 327,322.55 1,205.64 328,528.19 105,834.29 859.77 106,694.06 221,834.13 Operating Expenses: Rent Expense Wages Expense Misc. Supplies Expense Business License Expense Misc. Expense Depreciation Expense Insurance Expense Advertising Expense Interest Expense Telephone Expense Gain/Loss on disposal of equipment Total Operating Expenses: Net Income 24,549.19 10,670.72 3,000.46 2,045.77 1,363.84 677.86 1,091.08 1,549.74 818.31 490.98 100.00 46,357.95 175,476.18 Instructions Milestone 1 Preliminary Peyton Approved Statement of Retained Earnings For Year Ended 12/31/2017 Beginning Balance: plus Net Income $ 50,144.84 175,576.18 less Dividends: Ending Balance 105,000.00 $ 120,721.02 Peyton Approved Statement of Retained Earnings For Year Ended 12/31/2017 Beginning Balance: plus Net Income $ 50,144.84 175,476.18 less Dividends: Ending Balance 105,000.00 $ 120,621.02 Instructions Milestone 1 structions Preliminary Peyton Approved Statement of cash Flow For Year Ended 12/31/2017 Net Income Depreciation Expense $ 175,576.18 677.86 176,254.04 Increase in Accounts Receivable Increase in Baking Supplies Increase in Merchandise inventory Increase in Prepaid Rent Increase in Prepaid Insurance Increase in Misc. Supplies Increase in Accounts Payable Increase in Wages Payable Increase in Interest Payable (25,886.91) (8,187.84) (443.10) (449.55) (1,004.55) (114.99) 3,292.11 1,850.48 44.96 Operating Cash Flow Cash Flow from Investments Equipment Purchases 145,354.65 (6,000.00) Cash Flow from Investments Cash Flow from Financing Repayment of Note Payable Dividends Paid Cash Flow from Financing Net Cash Flow (6,000.00) (10,000.00) (105,000.00) (115,000.00) 24,354.65 Beginning Cash 43,165.39 Ending Cash 67,520.04 Peyton Approved Statement of cash Flow For Year Ended 12/31/2017 Net Income Depreciation Expense Loss on Disposal $ 175,576.18 677.86 100.00 176,354.04 Increase in Accounts Receivable Increase in Baking Supplies Increase in Merchandise inventory Increase in Prepaid Rent Increase in Prepaid Insurance Increase in Misc. Supplies Increase in Accounts Payable Increase in Wages Payable Increase in Interest Payable Increase in Other Receivable - Insurance Increase in Consignment inventory Increase in Customer Deposit (25,886.91) (11,362.84) (243.10) (449.55) (1,004.55) (114.99) 6,467.11 1,850.48 44.96 Operating Cash Flow Cash Flow from Investments Equipment Purchases Insurance Proceeds Cash Flow from Investments Cash Flow from Financing Repayment of Note Payable Dividends Paid Cash Flow from Financing Net Cash Flow Beginning Cash Ending Cash (6,000.00) 700.00 (4,000.00) (10,000.00) (105,000.00) 0 Instructions Milestone 1 175,476.18 176,254.04 You didn't include this information. How did you get the right number for operating cash flow? 145,654.65 (4,000.00) (115,000.00) 26,654.65 43,165.39 68,520.04 25,354.65 Peyton Approved Balance Sheet As of December 31, 2015 Assets Current Assets: Cash Accounts Receivable Baking Supplies Merchandise Inventory Prepaid Rent Prepaid Insurance Misc. Supplies Liabilities and Owners Current Liabilities: Accounts Payable Wages Payable Interest Payable 31507.58 35118.97 8042.23 580.27 1215.32 810.21 40.51 Total Current Assets Long Term/Fixed Assets: Baking Equipment 6000 Accumulated Depreciation -677.79 Net Fixed assets 77,315.09 Total Current Liabilities Long Term Liabilities: Notes Payable Total Long Term Liabilities: 5,322.21 Total Liabilities: Common Stock Retained Earnings Total Equity Total Assets: 82,637.30 Total Liabilities & Equity Liabilities and Owners' Equity iabilities: 15086.84 1118.83 121.53 rent Liabilities 16,327.20 m Liabilities: 10,000.00 g Term Liabilities: bilities & Equity 10,000.00 26,327.20 20,000.00 36,310.10 56,310.10 82,637.30 Peyton Approved Balance Sheet As of December 31, 2016 Assets Current Assets: Cash Accounts Receivable Baking Supplies Merchandise Inventory Prepaid Rent Prepaid Insurance Misc. Supplies Liabilities an 43,165.39 42,633.00 7,318.86 794.97 1,665.00 1,110.00 55.50 Total Current Assets Long Term/Fixed Assets: Baking Equipment Accumulated Depreciation Net Fixed assets Total Assets: 96,742.72 8,000.00 -928.58 7,071.42 103,814.14 proved Sheet er 31, 2016 Liabilities and Owners' Equity Current Liabilities: Accounts Payable 16,970.00 Wages Payable 1,532.80 Interest Payable 166.50 Total Current Liabilities Long Term Liabilities: Notes Payable Total Long Term Liabilities: 18,669.30 15,000.00 15,000.00 Total Liabilities: Common Stock Retained Earnings Total Equity Total Liabilities & Equity 33,669.30 20,000.00 50,144.84 70,144.84 103,814.14 Peyton Approved Income Statement For Year Ended 12/31/2016 Bakery Sales Merchandise Sales Total Revenues Cost of Goods Sold - Baked Cost of Goods Sold - Merchandise Total Cost of Goods Sold Gross Profit 214,256.48 770.76 215,027.24 73,159.59 549.64 73,709.23 141,818.01 Operating Expenses: Rent Expense Wages Expense Misc. Supplies Expense Business License Expense Misc. Expense Depreciation Expense Insurance Expense Advertising Expense Interest Expense Telephone Expense Total Operating Expenses: Net Income 15,694.23 6,821.76 1,668.18 1,307.85 871.9 433.36 697.52 740.74 523.14 313.88 29,072.56 112,745.45 2017 Instructions Milestone 1 2016 Current Ratio (Working Capital ) 5.78 5.18 Quick Ratio 4.89 4.60 A/R Turnover 5.91 5.53 Inventory Turnover 7.61 8.81 Gross margin 68% 66% Return on Sales 53% 52% average A/R average inventory Return on Equity 125% 161% average equity Return on Assets 101% 109% average asset Instructions Milestone 1 2015 8042.23 580.27 8622.5 2016 2017 38875.99 55576.46 7318.86 794.97 18681.7 1038.07 200 8113.83 19919.77 8368.165 14016.8 63227.47 105382.9 93225.72 138733.5 Total credit Sales/Average A/R Southern New Hampshire University ACC 308 - Intermediate Accounting II INSTRUCTIONS FOR MILESTONE 2 (Due Module 5) IMPORTANT NOTE: Make sure to completely review the Rubric for Milestone 2 Use the data from Milestone 1 and this Milestone to finalize your final project due in Final Project (Module 7) ITEMS TO COMPLETE FOR THIS MILESTONE (Green Tabs) : GENERAL Use information from Milestone 1 and the plan to open a new location (see bottom of page) for your statements PRO FORMA FINANCIAL STATEMENTS Prepare the following Pro Forma Financial Statements for the proposed new location (pro forma statements in this case are budgeted statements for 2018 based on the new location scenario at the bottom of the page) Pro Forma Income Statement Pro Forma Balance Sheet PEYTON APPROVED PRO FORMA INFORMATION The company is planning to open another location in 2018 . Prepare pro forma financials for 2018 for the new loca the following information: 1. Cost of leasing commercial space: $1,500 per month. 2. Cost of new equipment: $15,000. Use straight line depreciation assuming a seven-year life. Use full year’s depre the first year. 3. Cost of hiring and training new employees: three at $25,000 each for the first year. 4. Except as noted in 5, assets, current liabilities, sales, costs, and expenses are expected to be 80% of the existing (from preliminary statements) except no stock. Retained earnings = net income. 5. Cash: $7,000. Accounts receivable amount to 4.0 turns (accounts receivable turnover will be 4.0); inventory amo show 3.0 turns (inventory turnover will be 3.0). No stock will be issued. Retained earnings are to equal net income Additional financing of $5,000 will be long-term. Add remaining amount needed to balance into accounts payable. HOME (Module 7) or your statements tatements in this case ls for 2018 for the new location using ear life. Use full year’s depreciation for ed to be 80% of the existing store r will be 4.0); inventory amount to ngs are to equal net income. ance into accounts payable. Peyton Approved Second Location Pro Forma Income Statement For Year Ending 12/31/2018 nd Location Statement /31/2018 Instructions Milestone 2 Instructions Milestone 2 Peyton Approved Second Location Pro Forma Balance Sheet As of December 31, 2018 ond Location e Sheet 1, 2018 Instructions Milestone 2 Instructions Milestone 2
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