Overview: You just began a position as a financial accountant at Peyton Approved. In this role, your first task is to
prepare the company’s financials for the year-end audit. Additionally, the company is interested in expanding its
business within the next year. They would like your support in assessing their ability to meet their goals.
Refer to the data below and use the Final Project Workbook that includes the income statement, balance sheet, retained
earnings statement, and cash flow statement to complete the final project and associated milestones.
Peyton Approved Financial Data: Preliminary financial statements have already been prepared (2017 statements in the
Final Project Workbook). Final adjusting entries have not yet been made. See table for possible adjustments that
indicate what will be recorded at 12/31/17 (fiscal year end). Use the following to complete year-to-year documentation
and notes for managing depreciation, inventory, and long-term debt:
1. A supplier shipped $3,000 of ingredients on 12/29/17. Peyton receives an invoice for $3,175—goods
of $3,000 and freight of $175—all dated 12/29/17. Goods were shipped FOB supplier’s warehouse.
2. At 12/31/17, Peyton has $200 worth of merchandise on consignment at Bruno’s House of Bacon.
3. On 12/23/17, Peyton received $1,000 deposit from Pet Globe for product to be shipped by Peyton in
the second week of January.
4. On 12/03/2017, a mixer with a cost of $2,000, accumulated depreciation $1,200, was destroyed by a
forklift. As of 12/23/17, insurance company has agreed to pay $700 in January, 2018, for accidental
The company uses the following common ratios:
Current Ratio Current Assets/Current Liabilities
Quick Ratio Liquid Assets (cash, accounts receivable, marketable securities)/Current Liabilities
Account Receivable Turnover Total Revenue/Average Accounts Receivable
Inventory Turnover Total Cost of Goods Sold/Average Inventory
Gross Margin Gross Profit/Total Revenue
Return on Sales Net Income/Total Sales
Return on Equity Net Income/Total Equity
Return of Assets Net Income/Total Assets
The company is planning to open another location in 2018. Using the preliminary statements as a base, prepare pro
forma (budgeted) financials for 2018 for the new location using the following information:
Cost of leasing commercial space: $1,500 per month.
Cost of new equipment: $15,000, purchased with a long-term note. Use straight line depreciation assuming a
seven-year life, no residual value. Use full year’s depreciation for the first year. Equipment purchase was
financed with a long-term note.
Cost of hiring and training new employees: three at $25,000 each for the first year.
Cash: $7,000. Accounts receivable amount to 4.0 turns (accounts receivable turnover will be 4.0); inventory
amount to show 3.0 turns (inventory turnover will be 3.0). No stock will be issued. Retained earnings are to
equal net income. Additional financing of $5,000 will be long term. Add remaining amount needed to balance
into accounts payable.
Except as noted in 1, 2, 3, and 5, assets, current liabilities, sales, costs, and expenses are expected to be 80% of
the existing store (from preliminary statements) except no stock. Retained Earnings = Net Income
For notes to the financial statements and management analysis memo only, consider the following:
Peyton Approved uses the following accounting practices:
● Inventory: Periodic, LIFO for both baking and merchandise
● Equipment: Straight line method used for equipment
Business financing information: Use this information to calculate interest rates and insurance information and to assess
their impact on the company’s financial obligations:
● The 5-year loan was made on June 1, 2016. Terms are 7.5% annual rate, interest only until due date.
● Insurance: Annual policy covers 12 months, purchased in February, covering March 2017 to February 2018. No
monthly adjustments have been made.