Running Head: EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa a aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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Executive Summary
ACC309
Southern New Hampshire University
EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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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
EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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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.
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
EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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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 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
EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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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 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.
EXECUTIVE SUMMARY aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
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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.
