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"INSTRUCTIONS FOR MILESTONE TWO

$($Due in Module Five$)"$

Note: Make sure to completely review the Milestone Two Guidelines and Rubric document.

Use the data from Milestone One and this milestone to complete your final project, due in Module Seven.

ITEMS TO COMPLETE FOR MILESTONE TWO:

The tabs to complete are linked below and colored green for convenience.

GENERAL

Use information from Milestone One and the plan to open a new location for your statements. Peyton Approved's pro forma information is provided below.

$1.$ PRO FORMA FINANCIAL STATEMENTS

Note: Pro forma statements are "what if$"$ statements. If the company opens the second location, what will the budgeted income statement and budgeted balance sheets be$?$

Using the preliminary statements as a base, prepare the following pro forma financial statements for the proposed new location. Pro forma statements in this case are budgeted statements for $2018$ based on the new location scenario at the bottom of the page.

Pro Forma Income Statement

Pro Forma Balance Sheet

PEYTON APPROVED PRO FORMA INFORMATION

The company is planning to open another location in $2018.$ Prepare pro forma financials for $2018$ for the new location using the following information:

$1.$ Cost of leasing commercial space: $$1,500$ per month.

$2.$ Cost of new equipment: $$15,000,$ purchased with a long$-$term note. Use straight line depreciation assuming a seven$-$year life, no residual value. Use full year$$s depreciation for the first year. Equipment purchase was financed with a long$-$term note.

$3.$ Cost of hiring and training new employees: three at $$25,000$ each for the first year.

$4.$ Cash: $$7,000.$ Accounts receivable amount to $4\mathrm{.}0$ turns $($accounts receivable turnover will be $4\mathrm{.}0)$; inventory amount to show $3\mathrm{.}0$ turns $($inventory turnover will be $3\mathrm{.}0).$ No stock will be issued. Retained earnings are to equal net income. Additional financing of $$5,000$ will be long term. Add remaining amount needed to balance into accounts payable.

$5.$ Except as noted above, assets, current liabilities, sales, costs, and expenses are expected to be $80\%$ of the existing store $($from preliminary statements$)$ except no stock. Retained Earnings $=$ Net Income

$2.$ NOTES TO THE FINANCIAL STATEMENTS

"Note: This part of the project is submitted as a separate Word document. Refer to the Milestone Two Guidelines and Rubric document for submission guidelines.

You will find an example for how to format these notes located in the Module Five resources."

Your notes must contain the following:

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

B$.$ Create appropriate notes for long$-$term debt.

"Peyton Approved uses the following accounting practices:

$$ Inventory: Periodic, LIFO for both baking and merchandise

$$ Equipment: Straight line method used for equipment"

$3.$ MANAGEMENT ANALYSIS BRIEF

Note: This part of the project is submitted as a separate Word document expanding on the work you completed for Milestone One. Refer to the Milestone Two Guidelines and Rubric document for submission guidelines.

Your management analysis brief should explain financial information to management. Provide evidence from your accounting workbook to support your ideas where applicable.

A$.$ Discuss the impact of the pro forma financial statements for predicting ability to meet future expansion goals.

B$.$ Describe the implications of inventory costing, contingent liabilities, and revenue recognition.

C$.$ Identify potential issues in interpretation of financial information, providing examples to support your ideas.