Prompt: Using your review of the Final Project Scenario document, begin your workbook, including the impacts of leases and postretirement benefits.Note: Specifically, the following critical elements must be addressed:I. WorkbookA. Calculate capital lease obligations for determining debt and depreciation.B. Calculate pension payouts to determine the company’s financial obligations.C. Prepare adjusting entries for postretirement benefits and capital lease obligations.
ACC 309 Milestone Two Guidelines and Rubric Overview: For Milestone Two, which is due in Module Five, you will develop a portion of the workbook and a brief memo to management explaining the impacts of accounting for leases and postretirement benefits. You will build on this milestone in subsequent modules to create the balance sheet and executive summary portions of your final project. Prompt: Using your review of the Final Project Scenario document, begin your workbook and develop the second part of your executive summary, including the impacts of leases and postretirement benefits. Note: Milestone Two is a draft of some of the critical elements of the final project. Specifically, the following critical elements must be addressed: I. Workbook A. Calculate capital lease obligations for determining debt and depreciation. B. Calculate pension payouts to determine the company’s financial obligations. C. Prepare adjusting entries for postretirement benefits and capital lease obligations. II. Management Brief: Compose a report that appropriately communicates the impact of revisions to stakeholders. A. Explain the implications of capital lease based on how it relates to the company’s equipment usage. B. Explain how postretirement plans will impact the company financially in the short and long term, using examples from the accounting workbook to support claims. Rubric Guidelines for Submission: Your workbook must be submitted as a Microsoft Excel document, and your management brief should be a 1- to 2- page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. Critical Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value Workbook: Capital Lease Obligations Calculates capital lease obligations for determining debt and depreciation Calculates capital lease obligations for determining debt and depreciation, but calculations are inaccurate Does not calculate capital lease obligations 19 Critical Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value Balance Sheet: Pension Payouts Calculates pension payouts to determine the company’s financial obligations Calculates pension payouts to determine the company’s financial obligations, but calculations are inaccurate Does not calculate pension payouts 19 Balance Sheet: Adjusting Entries Prepares adjusting entries for postretirement benefits and capital lease obligations Prepares adjusting entries for postretirement benefits and capital lease obligations, but entries prepared contain inaccuracies Does not prepare adjusting entries 19 Management Brief: Capital Lease Explains the implications of capital lease based on how it relates to the company’s equipment usage Explains the implications of capital lease based on how it relates to the company’s equipment usage, but explanation is cursory or illogical Explain the implications of capital lease 19 Management Brief: Postretirement Plans Explains how postretirement plans will impact the company financially in the short and long term, using examples from the accounting workbook to support claims Explains how postretirement plans will impact the company financially, but examples provided are cursory or illogical Does not explain how postretirement plans will impact the company 19 Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 5 Total 100% ACC 309 Final Project Scenario Peyton Approved Overview Imagine that you are working as a financial accountant for Peyton Approved, and you have been charged with revising its financial information. The company has experienced tremendous growth in the past three years, and it is now a well-known bakery chain for pet products. They have become a publicly traded company and have several locations that they deliver to regionally. You will find the company’s financial information in the Peyton Approved Balance Sheet and Income Statement. This document will need revisions and appropriate notes added in order to prepare for the year-end audit accordingly. In addition to ensuring that the balance sheet is ready for the year-end audit, you will address other major areas of need, including: Assessing tax implications Evaluating and explaining stockholder equity Accounting for postretirement benefits (The amounts would be determined by actuaries.) Assessing impacts of leases Peyton Approved Financial Information Comprehensive Income Items Marketable securities on the balance sheet at a cost of $5,500,000 are available-for-sale Market value at the balance sheet date is $5,235,000 Prepare the adjusting entry to record the unrealized loss and include in comprehensive income. Tax Information and Implications $1,500 in meal and entertainment expenses show as a permanent difference for tax. This item was not previously included in the income tax calculation. Prepare the necessary adjusting entry. The company uses straight line depreciation for book and MACRS depreciation for the tax return. MACRS depreciation was $209,301 higher than book. The tax associated with book depreciation was previously recorded to income tax expense and current income tax payable. Prepare the adjusting entry for the deferred tax. There have been recent tax structure changes that could impact the company. Peyton Approved has been a C Corp since the beginning of these changes. Peyton provides for taxes at 25% of pretax income (20% Federal, 5% state). Potentially Dilutive Securities Peyton has the following potential dilutive securities: $4,000,000 in bonds payable 10%, 20 year. Every $1,000 bond can convert to 5 shares of common stock. Preferred stock—Every share issued can convert to 1 share of common stock. Expansion Plans The company is adding two storefront locations and launching a new marketing campaign, which is estimated to bring in 20,000 new customers over the next six months. The company expects this expansion will require an additional $1,000,000 of capital and generate an additional $600,000 of after-tax profit. The financing options are: 1. Issuing an additional $1,000,000 of 10%, 100-par convertible preferred stock (same class as is currently outstanding) 2. Issuing an additional $1,000,000 of 8% convertible bonds (same terms as the existing issue) 3. Issuing $500,000 each of preferred stock and bonds Postretirement Benefits Peyton Approved has revised its postretirement plan. It will now provide health insurance to retired employees. Management has requested that you report the short- and long-term financial implications of this. The company is currently employing 60, and actuaries estimate that the company has a pension liability of $107,041.70. The estimated cost of retired employees’ health insurance is $43,718.91. Prepare adjusting entries for the pension liability and the health insurance liability. Leases Six ovens were rented on December 31, with $20,000 charged to rent expense. The lease runs for 6 years with an implicit interest rate of 5%. At the end of the 6 years, Peyton will own them. Make any necessary adjusting entries. Other Items On December 31, 20XX, the company repaired a packaging machine at cost of $27,000.00. It is expected that the repair will extend the life of the machine by four years. No depreciation is necessary this year. The initial entry recorded the repair to the repair and maintenance account. The company spent $50,000 to obtain and defend a patent for its formula for dog treats. The patent took effect on 1/1/20XX and provides 20 years of protection. The $50,000 amount was incorrectly charged to Misc. Expense Make any necessary adjusting entries. Note 9—Accumulated Other Comprehensive Loss Changes in the composition of accumulated other comprehensive loss for 2014, 2015, and 2106 are as follows (in millions)— Foreign currency translation adjustments Unrealized gains on available-for- sale securities Total Balances as of January 1, 2014 $ (187) $ 2 $ (185) Other comprehensive income(loss) (325) (1) (326) Balances as of December 31, 2014 (512) 1 (511) Other comprehensive income(loss) (210) (2) (212) Balances as of December 31, 2015 (722) (1) (723) Other comprehensive income(loss) (279) 17 (262) Balances as of December 31, 2016 $ (1,001) $ 16 $ (985) Amounts included in other comprehensive loss are recorded net of their related income tax effects. Final Project Checklist ___Completed Excel File ___Word File 1: Notes to the Financial Statements ___Other Comprehensive Income/Loss ___Word File 2: Executive Summary ___A. Identify Other Comprehensive Income ___B. Rationale for Other Comprehensive Income ___C. Stockholder Equity ___D. Retained Earnings per Share ___E. Preferred Stock or Debt ___F. Current Tax Structure ___G. Capital Lease ___H. Postretirement Plans ___I. Current Performance ___J. Retrospective and Prospective Approaches ___K. New Credit Policies ___L. Accounting Standards ___M. Four-Step Process