ACC 222 External Reporting II
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This quiz is based on the 10-K for the year ended December 28, 2013 for PepsiCo, Inc. You can obtain Pepsi’s financial statements from the firm’s corporate web site at http://www.pepsico.com/Investors.html. Unless otherwise indicated, all questions relate to the current period’s financial statements.
1. How much is the current maturity of Pepsi’s long-term debt that was shown as a current liability?
5306millions
2.Compute the average interest rate for Pepsi’s debt. You can do this by dividing interest expense by the average balance sheet amount for debt incurring interest (so exclude current liabilities and deferred taxes).
Interest expense 2013= 911 millions
Debt incurring interest 2013 =
53089-17839-5986=29264 millions Debt incurring interest 2012=
52239-17089-5063=30087 millions Average = (29264+30087)/2=29675.5 millions
Average interest rate = 911/29675.5=3.07%
Essay on goodwill
3. Compute the following ratios for 2013 and 2012. Please indicate both the amounts that you used to compute the ratio and the final ratio.
Ratio:
2013
2012
Debt to Equity
Total liability =53089 Shareholders’ equity =24389
Debt to Equity= 53089/24389=2.18
Total Liability = 52239 Shareholders’ Equity = 22399 Debt to Equity = 52239/22399=2.33
Return on Assets
Net Income=6787 Total Asset =77478
Return on Asset= 6787/77478=8.76%
Net Income=6214 Total Asset =74638
Return on Asset= 6214/74638=8.33%
Return on Equity
Net Income=6787 Total Equity=24389
Return on Equity= 6787/24389=27.83%
Net Income=6214 Total Equity= 22399
Return on Asset= 6214/22399=27.75%
Times Interest Earned
EBIT=9705+97=9802 Interest Expense =911
Times Interest Earned= 9802/911=10.76
EBIT=9112+91=9203 Interest Expense =899
Times Interest Earned= 9203/899=10.24
4.Based on your analysis of these four ratios, did Pepsi’s debt coverage improve in 2013? Please explain your answer. Of course, Yes. Pepsi’s debt coverage improved in 2013. In 2013, Pepsi has a higher ratio in Times interest Earned, which measures the company’s ability to meet its debt obligations. So Pepsi has more ability to cover it debt in 2013 than 2012. Further, Pepsi has higher ratio in return on asset, higher ratio in return on equity and lower ratio in Debt to Equity. Return on Asset measures how profitable a company is relative to its total asset. Return on Equity measures a company’s profitability by revealing how much profit it generates with the money shareholders invest. As a result, Pepsi grow up and performs very well in operation Essay on financial accounting
Average interest rate = 911/29675.5=3.07%
Essay on goodwill
3. Compute the following ratios for 2013 and 2012. Please indicate both the amounts that you used to compute the ratio and the final ratio.
Ratio:
2013
2012
Debt to Equity
Total liability =53089 Shareholders’ equity =24389
Debt to Equity= 53089/24389=2.18
Total Liability = 52239 Shareholders’ Equity = 22399 Debt to Equity = 52239/22399=2.33
Return on Assets
Net Income=6787 Total Asset =77478
Return on Asset= 6787/77478=8.76%
Net Income=6214 Total Asset =74638
Return on Asset= 6214/74638=8.33%
Return on Equity
Net Income=6787 Total Equity=24389
Return on Equity= 6787/24389=27.83%
Net Income=6214 Total Equity= 22399
Return on Asset= 6214/22399=27.75%
Times Interest Earned
EBIT=9705+97=9802 Interest Expense =911
Times Interest Earned= 9802/911=10.76
EBIT=9112+91=9203 Interest Expense =899
Times Interest Earned= 9203/899=10.24
4.Based on your analysis of these four ratios, did Pepsi’s debt coverage improve in 2013? Please explain your answer. Of course, Yes. Pepsi’s debt coverage improved in 2013. In 2013, Pepsi has a higher ratio in Times interest Earned, which measures the company’s ability to meet its debt obligations. So Pepsi has more ability to cover it debt in 2013 than 2012. Further, Pepsi has higher ratio in return on asset, higher ratio in return on equity and lower ratio in Debt to Equity. Return on Asset measures how profitable a company is relative to its total asset. Return on Equity measures a company’s profitability by revealing how much profit it generates with the money shareholders invest. As a result, Pepsi grow up and performs very well in operation Essay on financial accounting
Financial vs External Reporting
Financial Statements for Internal
Reporting Purposes vs. Financial Statements for External Reporting Purposes It
is common in most companies to maintain two set of financial statements; one
being used/presented for internal reporting purposes and another for reporting
externally. Internal reports are used primarily to aid management in the
decision making process throughout the course of the business. These are
subject to internal audit to make sure that all information reported are fair
and correct, safeguard the assets of the company, assure compliance to laws and
regulations, etc. The company employs the internal accountants and therefore,
unregulated, although there are international standards for internal auditing.
External Reports on the other hand, are to provide information on the financial
position, performance and changes in the financial position of the company for
a variety of users such as the government, shareholders, financial institutions,
employees, vendors, and the public itself. These reports should be very
understandable, and are assumed to be read by users who have reasonable
knowledge on financials and business, and for those who are willing to study
the information diligently. Most of the external users depend completely on
these reports for their decision making. The reports are expected to be
reliable so the companies should employ external auditors that are independent
from the company. This is to avoid conflict of interests and bias towards the
information presented by the company. Ideally, the financial statements that
are audited by the internal auditors should be the same as the statements that
would be subject to external audit. The problem arises when the company decided
to report financial statements that are entirely different from the internally
used and that of externally used. But still the intention of the company why it
reported two different reports should be considered as well because that is
where the ethical issue starts. If the company’s primary intention is to
conceal the truth to avoid tax penalties, attract more investors, or lure a
vendor to give a high credit limit, then the ethical standard of
utilitarianism, rights and duties as well as the fairness and equity are
violated. For utilitarianism approach, the external users will surely not
benefit from the concealment. Their investments, assets, as well as the
benefits from taxes are at risk. Only the company will benefit from it. In
terms of the rights and duties approach, the shareholders has all the rights to
know the true standing of the company and the duty of the company is to provide
them the truth. The issue on fairness and equity is that other users may be
able benefit from some concealment while others may not.
Maintaining two sets of Financial Records/Statement has been a long practice for almost all if not all major companies worldwide. An example of which is the manner of reporting sunk costs. Companies do recognize sinking cost in the Financial Statement. While this could be creditable as expense for tax accounting purposes, the said cost is no longer relevant for management decision thus no longer required in the books for Internal Purposes. Keeping two books would allow company executives to better examine items that matter to them especially those which affect the company in the future. There is nothing wrong in maintain two sets of books specially if the reports are in accordance the accounting guidelines such as the GAAP or other statutory requirements required by the government where the company operates and are prepared in accordance with the Bureau of Internal Revenue regulations. As explained above, the books for internal management are for their use only and need not be shown to the public or used in taxation purposes.
Maintaining two sets of Financial Records/Statement has been a long practice for almost all if not all major companies worldwide. An example of which is the manner of reporting sunk costs. Companies do recognize sinking cost in the Financial Statement. While this could be creditable as expense for tax accounting purposes, the said cost is no longer relevant for management decision thus no longer required in the books for Internal Purposes. Keeping two books would allow company executives to better examine items that matter to them especially those which affect the company in the future. There is nothing wrong in maintain two sets of books specially if the reports are in accordance the accounting guidelines such as the GAAP or other statutory requirements required by the government where the company operates and are prepared in accordance with the Bureau of Internal Revenue regulations. As explained above, the books for internal management are for their use only and need not be shown to the public or used in taxation purposes.
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