ACC 290 Financial Reporting Problem, Part II

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Financial Reporting Problem, Part IIACC/290University of PhoenixNameDateInstructorIn this financial report for PepsiCo, you provided a detailed analysis of the company's assets,liabilities, and income. Based on the information presented, how do PepsiCo's current assets andliabilities reflect its financial health and operational effectiveness? Additionally, explain how theclassification and management of assets such as cash equivalents and short-term investments areessential for the company's liquidity and overall financial strategy.Please provide a thorough analysis, ensuring to include specific data points and figures from theprovided financial statements. Your response should be at least 750 words.

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Financial 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. Someexamples 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.

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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.The total current liabilities reported at the end of PepsiCo’s most recent annual reportingperiod was, $15,892,000 (Yahoo Finance, 2011). This included the accounts payable andshort/current long-termdebt. Accounts payable accounted for $10,994,000. This is the amountthe company owes to suppliers that they have not yet paid. They bought supplies on credit andreceived an invoice to be filed. The invoice willbe paid at a later date and removed from thefile.Short/current long-term debt made up the other $4,898,000. This is the portion of long-term debt that must be paid in the next 12months. Say PepsiCo borrowed from their financialinstitution. The loan is set to be paid back in 10 years. This is year number four on paying backthe loan. The company record portion of the loanpaid this year under the short/current long-termdebt.Current liabilities are billsthe company owes to creditors and suppliers within a shorttime, usually 12months. For the previous accounting period ending as December 26, 2009,PepsiCo had a total of $8,756,000 in total current liabilities (Yahoo Finance, 2011). The totalcurrent liabilities encompass accounts payable, payables accrued, accrued expenses, and notespayable/short-termdebt. The biggest current liability is accounts payable, whichis the moneyowed to venders for goods or services provided to the company. Of the total current liabilitiesfrom 2009 the account payable was the most with $8,292,000. Notes payable/short-termdebthas total of $464,000.

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