Question

Create appropriate notes as year-to-year documentation for managing depreciation, supplies, and inventory

Inventory: Periodic, LIFO for both baking and merchandise

Baking supplies: $27,850 ending inventory

Equipment: Straight line method used for equipment

2018 Balance Sheet: Baking supplies $28,222.48 Merchandise Inventory $229.27

2017 Balance Sheet Baking Supplies 15,506.70 Merchandise Inventory 1,238.07

2018 Income Statement: Bakery Sales $    261,858.04 Merchandise Sales                 964.51      Total Revenues          262,822.55 Cost of Goods Sold - Baked           84,667.43 Cost of Goods Sold - Merchandise                 687.82 Total Cost of Goods Sold             85,355.25 Gross Profit          177,467.30

2017 Income Statement Bakery Sales $           327,322.55 Merchandise Sales                    1,205.64      Total Revenues     328,528.19 Cost of Goods Sold - Baked                105,834.29 Cost of Goods Sold - Merchandise                        859.77 Total Cost of Goods Sold     106,694.06 Gross Profit     221,834.13

Answer 1

DEPRICIATION:
Peyton Approved currently uses the straight-line depreciation method for its equipment. The straight-line method equally distributes depreciation throughout the assets depreciable life. As identified on the Pro Forma Income Statement and Balance Sheet, depreciation will remain at $2,143. To manage depreciation, Peyton Approved new location should develop and follow a depreciation method that results in an accurate statement of costs and net income.

MANAGING SUPPLIES:
Peyton Approved currently has $27,850 in supplies. To manage supplies year-to-year, Peyton Approved needs to focus on tracking a company’s volumes and using those volumes to secure lower purchase prices, and freight costs on incoming shipments

MANAGING INVENTORY:
Peyton Approved currently has $229 in inventory and follows a periodic, last in first out (LIFO) method for merchandise and baking. With the periodic LIFO method, LIFO will always result in the least amount of profit which could negatively reflect upon the new location. To manage inventory year-to-year, Peyton Approved needs to reduce costs of inventory, forecast demand, prevent shortages, and multilocation management. Given this is a new location for Peyton Approved, tracking inventory from the first location is key to successfully managing inventory across the entire company.

LONG TERM DEBT:
Long-term debt can help a new location grow as it allows for expansion without immediate revenue obligations. However, the location must generate enough revenue to handle the locations expenses as well as the long-term commitment. The new location has already established long-term debt as the location is cash-strapped with $7,000 in cash. Carefully analyzing the needs for the new location with the necessity for long-term debt will keep the delicate balance of assets to liabilities will support the growth of the location while maintaining debts. Also Maintaing Debt-to-equity ratio becomes a key aspect.