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ACC/290 Financial Reporting Problem, Part II University of Phoenix

Continuation of financial reporting analysis, focusing on advanced accounting challenges.

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    Running head: FINANCIAL REPORTING PROBLEM 1 Financial Reporting Problem, Part II ACC/290 University of Phoenix In your analysis of PepsiCo's financial standing, you have highlighted key details about the company’s assets, liabilities, and stockholders’ equity. Based on the provided balance sheet and income statement data, explain how PepsiCo's current and long - term liabilities are managed, and assess the company’s ability to meet its financial obligations. Additionally, discuss how PepsiCo’s management of current assets, such as cash equivalents and short - term investments, can support its operational needs. Finally, consider the role of external stakeholders (employees, investors, creditors) in using this financial information for decision - making. Word Count Requirement: 600 - 800 words

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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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