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ACC 290 Week 5 Learning Team Assignment Financial Reporting Problem, Part 2

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Running head: FINANCIAL REPORTING PROBLEM 1
Financial Reporting Problem, Part II
ACC/290
University of Phoenix

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FINANCIAL REPORTING PROBLEM 2
Financial Reporting Problem, Part II
PepsiCo is a highly known beverage distributor. The cola started in the late 1800s in a
drugstore, and its original name was “Brad’s Drink.” In 1898, cola introduced “Brad’s Drink” to
the market. Then, later change the name to Pepsi. It is a large company that has numerous assets
and liabilities. Many investors and creditors would be willing to work with this company
because they run a good business.
Currents assets are very significant to companies like PepsiCo. In the balance sheet,
“current assets are assets that a company expects to convert to cash or use up within one year or
its operating cycle, whichever is longer. For most businesses, the cut off for classification as
current assets is one year from the balance sheet date” (Kimmel, Weygandt, & Kieso, 2011, p.
49). The company can use these assets to support its routine operations. For example, the
company can use the assets to pay their current expenses.
The common type of current assets consist of cash, marketable securities, inventory,
accounts receivable, prepaid expenses and additional liquid assets that the company can quickly
convert into cash. However, according to Kimmel, Weygandt, and Kieso, 2011, companies
normally arrange their current assets in the order in which they anticipate to convert them into
cash. Therefore, the proper order for a company to have its assets listed under the current assets
is as follows: “cash, (2) short-term investments (such as short-term U.S. government securities),
(3) receivables (notes receivable, accounts receivable, and interest receivable), (4) inventories,
and (5) prepaid expenses (insurance and supplies)” (Kimmel, Weygandt, & Kieso, 2011, p. 50).
PepsiCo register its assets in the proper order under their current assets. First on the list
are its cash and cash equivalents, which is anything that can immediately turn into cash. Some

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FINANCIAL REPORTING PROBLEM 3
examples of cash and cash equivalents are money, paper checks, money orders, gift certificates,
and gift cards. The second type of assets is the short-term investments. These investments
accounts hold bonds and stocks that the company can liquidate reasonably fast. The third asset
listed is the net receivables. The net receivable is full amount of money PepsiCo’s customers
owed minus the amount that the company does not expect to receive from its clients. The next
on the list is the company’s inventory. Inventory is second to last on the list mainly because the
company has to sell its supplies and certain products may take time to sell. Then other current
assets locate last on the list. This account contains non cash value assets, such as account
receivable and prepaid expenses.
In general, PepsiCo classify its assets in the following order. First it has its current assets
listed with the total current assets; followed by long-term investments, property plant and
equipment, goodwill, intangible assets, accumulated amortization, other assets, deferred long-
term asset charges, and total assets (Yahoo Finance, 2011).
A company’s cash equivalents are its short-term investments. These investments are
highly liquid and can easily be converted to cash (Stock Analysis on Net, 2011). The short-term
investments are so near maturity, usually three months or less, they have a minimal risk of
changes in value because of changes in interest rates (Stock Analysis on Net, 2011).
Compensating balance arrangements that do not legally restrict withdrawal use of cash amounts
also qualify as cash equivalents (Stock Analysis on Net, 2011). PepsiCo reported $5,943,000 in
cash and cash equivalents in its most recent reporting period (Yahoo Finance, 2011). Its short-
term investments were in the amount of $426,000 in 2010.

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