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

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Running head: FINANCIAL REPORTING PROBLEM1Financial Reporting Problem, Part IIACC/290University of PhoenixIn your analysis of PepsiCo's financial standing, you have highlighted key details about thecompany’s assets, liabilities, and stockholders’ equity. Based on the provided balance sheet andincome statement data, explain how PepsiCo's current and long-term liabilities are managed, andassess the company’s ability to meet its financial obligations. Additionally, discuss howPepsiCo’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 PROBLEM2Financial Reporting Problem, Part IIPepsiCo is a highly known beverage distributor. The cola started in the late 1800s in adrugstore, andits original name was “Brad’s Drink.”In 1898, cola introduced “Brad’s Drink” tothe market. Then, later change the name to Pepsi. It is a large company that has numerous assetsand liabilities. Many investors and creditors would be willing to work with this companybecause they run a good business.Currents assets are very significant to companies like PepsiCo. In the balance sheet,“currentassetsare assets that a company expects to convert to cash or use up within one year orits operating cycle, whichever is longer. For most businesses, the cut off for classification ascurrent 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, thecompany can use the assets to pay their current expenses.The common type of current assets consist ofcash, marketable securities, inventory,accounts receivable, prepaid expenses and additional liquidassets that the company can quicklyconvert into cash. However, according toKimmel, Weygandt, and Kieso, 2011, companiesnormally arrange their current assets in the order in which they anticipate to convert them intocash. Therefore, the proper order for a company to have its assets listed under the current assetsis 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 listare its cash and cash equivalents, which is anything that can immediately turn into cash. Some

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FINANCIAL REPORTING PROBLEM3examples of cash and cash equivalents are money, paper checks, money orders, gift certificates,andgift cards. The second type of assets is the short-terminvestments. These investmentsaccounts hold bonds and stocks that the company can liquidate reasonably fast. The third assetlisted is the net receivables. The net receivable is full amount of money PepsiCo’s customersowed minus the amount that the company does not expect to receive from its clients. The nexton the list is the company’s inventory. Inventory is second to last on the list mainly because thecompany has to sell its supplies and certain products may take time to sell. Then other currentassets locatelast on the list. This account contains non cashvalue assets, such as accountreceivable and prepaid expenses.In general, PepsiCo classify its assets in the following order. First it has its current assetslisted with the total current assets; followed by long-term investments, property plant andequipment, goodwill, intangible assets, accumulated amortization, other assets, deferred long-termasset charges, and total assets (Yahoo Finance, 2011).A company’s cash equivalents are its short-term investments. These investments arehighly liquid and can easily be converted to cash (Stock Analysis on Net, 2011). The short-terminvestments are so near maturity, usually three months or less, they have a minimal risk ofchanges 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 amountsalso qualify as cash equivalents (Stock Analysis on Net, 2011). PepsiCo reported $5,943,000 incash 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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