ACCT400A/500A

Intermediate Financial Accounting

Project #3
Tyler McBride
Project Questions
1. Using your knowledge of the accounting standards related to revenue recognition; discuss your
company’s policies in context of their business model. Does your company receive cash in advance of
providing a good/service, are they paid at the point of sale, or do they sell on credit? How does the
business model impact their accounting choices? What related information do the footnotes provide?
a. PepsiCo. Inc. is a leading global food and beverage company whose major competitor is Coca
Cola. Pepsi recognizes revenue when the performance obligation is satisfied which is upon the
shipment or delivery to customers. Pepsi’s products are sold for cash or on credit terms. They
also estimate and reserve for bad debt based on experience with past accounts and
collectability. Pepsi offers sale incentives and discounts through various programs to customers
and consumers. Pepsi sells their products under Pepsi is a very successful business that properly
adjusts for returns and product defects. The footnotes provide information on their expected
increase for expenses in 2019.
2. Are there any specific issues related to revenue recognition your company needs to consider in
preparing their financial statements? Examples could include sales returns, gift cards, collectability
concerns, etc. How do these issues impact the financial statements? What related information do the
footnotes provide?
a. Pepsi has to account for many potential issues related to revenue recognition. This includes
sales returns, product defects, and collectability concerns. Their policy is to replace damaged
and out-of-date products. This results to record reserves, based on estimates, for anticipated
damaged and out-of-date products. Pepsi estimates and reserves for bad debt exposure based
on past experience with due accounts and collectability. Pepsi does a good job properly
estimating for bad debt expense in their financial statements. The footnotes also provide more
information on their bad debt expense and potential increase in 2019.
3. Compute your company’s current ratio and debt to equity ratio for both years presented in the
balance sheet. Analyze and discuss what these ratios tell you about the company.
!"##$%& ())$&)
a. Current Ratio: !"##$%& *+,-+.+&+$)

𝟐𝟏,𝟖𝟗𝟑 𝟑𝟏,𝟎𝟐𝟕
i. 2018: 𝟐𝟐,𝟏𝟑𝟖 =. 𝟗𝟖𝟖𝟗 2017: 𝟐𝟎,𝟓𝟎𝟐 = 𝟏. 𝟓𝟏
:;&,. *+,-+.+&+$)
b. Debt to Equity Ratio: <="+&>
?@,AB? ?H,HD@
i. 2018: CB,?AD = 4.32 2017: CA,IHC = 6.27
- The current ratio measures a company’s ability to pay short-term obligations or those within one year. It
also helps investors how a company can maximize the current assets to satisfy its current debt. This is a
relatively good ratio, however, 2017 was better than 2018. The debt to equity ratio shows the
percentage of a company that comes from investors and creditors. A higher ratio means that the
company is using more loans than investor financing. Therefore, 2018 is better than 2017 was.
4. Compute your company’s profit margin on sales and return on assets for the most recent year.
Analyze and discuss what these ratios tell you about the company.
L#;)) M#;N+& @P,DHA
a. Profit Margin: O,.$)
2018: ?B,??C= .55 or 55%
 Q$& R%S;T$ CD,PPI
Return on Total Assets: (UV.:;&,. ())$&) 2018: WH,WD? = .16 𝑜𝑟 16%
- These ratios provide a lot of information about a company. A low percentage would indicate high costs
which means less profit. Pepsi has a 55% profit margin which is relatively high and profitable which
means they have been very successful in 2018. Return on total assets measures a company’s earnings
and indicates how effectively a company is using its assets to generate earnings. Pepsi has a 16% ROA
which is generally good and means that they have efficiently used their assets to generate profits.

Copyright © Arizona Board of Regents Page 2 of 3

Copyright © Arizona Board of Regents Page 3 of 3