Running Head: EXECUTIVE SUMMARY f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 1
Executive Summary
ACC309
Southern New Hampshire University
June 20,2022
EXECUTIVE SUMMARY f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 2
This Peyton Approved executive summary will shed light on the comprehensive income
at the end of 2017. The executive summary will also highlight other comprehensive income
sources, issuance of debt or share, stockholder equity impact, changes in the recent tax
structure, and retained earnings per share. It will provide insights into how the current
performance, lease, and postretirement plans have an impact on the finances of the company. In
order to support the various claims, appropriate evidence will be used.
Peyton Approved does have other comprehensive income source. It is seen from the
marketable securities that are available at $5,500,000. It is available for sale. According to the
balance sheet of December 21, 2017, the marketable securities’ market value is found to be
$5,235,000. It clearly reflects a price difference of $265,000. It has not been recorded as net
income but as an unrealized loss (Kieso et al., 2019). However, as the value has not been
realized, it must be regarded as other comprehensive income. It is important to disclose the
losses and gains as other comprehensive income on the basis of rate in the market. It will reflect
the changes in the company’s equity apart from the net income of Peyton Approved.
Stockholder equity provides a clear picture of the capital invested by the stakeholders on
Peyton Approved and the retained earnings. The accuracy of these calculations is important
owing to their impact on the future stakeholder’s decisions. The ratio provides an understanding
of the profit made by the company per sale. In order to calculate the return on equity of Peyton
Approved, it is important to consider the net income and then divide it with the balance sheet’s
total equity (Kieso et al., 2019). While the net income found in the balance sheet is
$12,428,782.25, the total equity is $11,326,904.84. From the calculations, it is found that the
return on equity of Peyton Approved is 1.09. It means that the stockholders got a profit of 109%
on dollars invested. Within a time frame of six months, Peyton Approved plans to add more
20,000 new customers to its new location. Therefore, it seems to be extremely profitable.
EXECUTIVE SUMMARY f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 3
In order to calculate the retained earnings per share, the preferred dividends were subtracted
from net income and then divided by the outstanding shares. From the calculation,
(12,428,782.25 - 50,000) / 1,750,000, the earnings per share or EPS of Peyton Approved was
found to be $7.07. The increase in the EPS led to an increase in the willingness of the
stockholders to pay more. Peyton Approved requires an appropriate way to enhance its net
income in order to increase EPS. An increase in the net income would ultimately enable Peyton
Approved easily attract more stockholders. It would even make the exiting stockholders to buy
more stocks. The stockholders show interest in paying more for the profitable company.
For the expansion plan of Peyton Approved, the issuance of preferred stock can prove to
be beneficial. It will allow Peyton Approved to get the required capital at a relatively lower rate.
The stockholders having preferred stock would even get dividend payments. It would be a win-
win situation for all the parties involved (Kieso et al., 2019). The addition of about 20,000
customers would also increase the EPS of Peyton Approved over time.
The deferred tax liability of Peyton Approved was found to be $52,325.25. It was due to
the latest change in the tax structure of the company, which stands at 25%. For the depreciation
of the book, Peyton Approved leverages a straight-line method. On the other hand, it used
MACRS for tax return depreciation. The deferred tax liability was calculated by multiplying the
MACRS depreciation difference, which is $209,301, by the latest tax rate of 25%. A Peyton
Approved is a C Corp, the new tax is likely to have a negative impact on Peyton Approved. The
increase in the taxes will result in a decrease in Peyton Approved’s net income. It can ultimately
lower the EPS, thereby affecting the stockholders.
The capital lease can be stated as a lease transferring all the ownership benefits and risks
as in economic substance, a sale by the lessor and a purchase by the lessee. It is another option
available in place of buying equipment for the company. Instead of making the full payment of
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the six ovens required by Peyton Approved, they opt to lease them. It saved them from an
immediate debt. The capital lease was reported on the balance sheet of Peyton Approved. It
increased the total assets of the company (Kieso et al., 2019). The finalization of the lease
payments of the 6 ovens will result in ownership. It is important to record the depreciation on
the balance sheet of the company.
Postretirement plans are likely to have long-term and short-term financial impacts.
Currently, Peyton Approved has 60 employees and offers health insurance for retired
employees. The pension liability is estimated to be $107,041.70, while the health insurance cost
of the retired employees is $43,718.91. After the retirement of the employees, the pension
liability is spread in monthly increments. A majority of pension payments are inelastic and
allow easy estimation. The estimation of health insurance is difficult as not all employees will
get its benefits regularly. As no costs can be set, there is a chance that Peyton Approved will
face larger health insurance liabilities in comparison to original estimations.
At present, Peyton Approved is functioning well. A quick ratio will help in the
determination of the ability of the company to pay all the short-term obligations. The
calculation using the formula (current assets – inventory – prepaid expenses)/ current liabilities.
On calculation, (15,847,105-128,152.63-71,877.07)/4,122,072.16, the quick ration of Peyton
Approved is found to be 3.79. It indicates that the company is capable of covering 3.79 times its
current liabilities.
While accounting for the encountered changes in a company, two methods can be used.
It includes prospective and retrospective. Retrospective adjustments demand the revision of
financial statements that has been already reported as if a new accounting principle has been
used. However, prospective adjustments don’t necessitate any changes to the previous
statements. Only the current as well as future periods, are to be changed. The prospective
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method requires adjustment of change in depreciation method and accounting estimates. The
use of the retrospective method requires adjustment to the reporting entities changes. In the case
of Peyton Approved, prospective adjustments were used to adjust the postretirement benefits
and depreciation adjustments.
Peyton Approved plans to maintain transparency and adhere to the regulations and rules
of GAAP. GAAP allows the company to maintain complete transparency and update the
employees and shareholders of the company relating to its financial health. It also allows for
meeting the regulations of FASB and SEC. Being up-to-date and transparent can help Peyton
Approved to stand out in the market.
The four-step analysis and error correction method was used to correct the errors. The
four steps are analysis of the error and identification of the recorded error, determination of the
journal entry which ought to be recorded, identification of additional errors, and preparation of
the correcting entries. The previous errors have been recorded as adjustments made to the
retained earnings. It is due to the closing of the previous expense and revenue accounts. The
steps were undertaken in order to correct the oven lease expenses and patent expenses of Peyton
Approved.
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References
Kieso, D. E., Weygandt, J. J., Warfield, T. D., Wiecek, I. M., & McConomy, B. J. (2019).
Intermediate Accounting, Volume 2. John Wiley & Sons.
