October 13, 2021

This document is created to go hand-in-hand with the 2017 financial statements for Peyton’s Approved. It discusses the year-to-year documentation for managing depreciation, supplies, inventory, and long-term debt. The document is divided into headers for the accessible location of the required information.

• Inventory

Summary of Peyton’s Approved’s Inventory

As of December 31, 2017

            Inventories consist of products available for sale. Peyton’s Approved uses periodic LIFO for both baking and merchandise inventory. LIFO means last-in, first-out. “Under LIFO, the cost of the most recent products purchased (or produced) are the first to be expensed as cost of goods sold (COGS), which means the lower cost of older products will be reported as inventory” (Smith, 2020). It is crucial to keep in mind that Peyton’s Approved tries to maintain selling only fresh food, hence the need for a LIFO costing system.

• Plant, Property, and Equipment

Summary of Peyton’s Approved’s PPE

As of December 31, 2017

Long Term/Fixed Assets:

Baking Equipment  12,000.00     

Accumulated Depreciation (1)406.44

Net Fixed assets                     11,593.56 

Summary of Peyton’s Approved’s PPE

Pro-Forma Balance Sheet Statement

Long Term/Fixed Assets:

Baking Equipment  15,000.00     

Accumulated Depreciation (1)2,142.86

Net Fixed assets           12,857.14 

(1) Peyton’s Approved uses a straight-line method for recording depreciation. Each year, the company records the depreciation for its’ PPE accordingly. Both book value of baking equipment and accumulated depreciation is shown in the 2017 Balance Sheet and the 2018 Pro-forma balance sheet.

• Supplies

Peyton’s Approved uses the freshest and highest quality baking supplies for its’ products. However, supplies are subject to changing market prices and may spread the effect to its’ customers. Peyton’s Approved may try to negotiate with its’ supplier for lower and locked prices.

• Long-term Debt

Summary of Peyton’s Approved’s Long-term Liabilities

For 2016, 2017, and 2018

NOTES PAYABLE

2018, pro forma $20,000

2017  $5,000

2016  $15,000

Peyton’s Approved acquired a 5-year loan on June 1, 2016. The terms of the loan were a 7.5% annual rate, interest-only until the due date. In 2017, Peyton’s Approved acquired a note payable of $5,000. In 2018, the business plans to take out $15,000 for the purchase of new equipment. The 2018 Pro-forma is taken from 2017 and added to the $15,000. All these notes are necessary in order to finance the business. The quick ratio of the business in 2017 is 4.91 and 5.78 for the current ratio. These numbers may only signify the short-term liquidity of the business, but it means that the business is healthy enough and far away from bankruptcy.

References

Smith, T. (2020, September 29). Last In, First Out (LIFO). Investopedia. Retrieved from https://www.investopedia.com/terms/l/lifo.asp