Workbook A. Prepare adjusting entries for unrealized loss and tax issues. II. Management Brief

A. Identify sources of other comprehensive income not included in net income.

B. Explain rationale for the inclusion as comprehensive income (as opposed to net income) of nondisclosure within notes.

C. Evaluate impacts of company goals and finances for their implications on stockholder equity, using financial information to support claims.

D. Evaluate impacts of company goals and finances for their implications on retained earnings per share, using financial information to support claims.

E. Explain the impact of issuing preferred stock or debt for determining changes to equity structures.

F. Assess the impact of changes to current tax structure for articulating changes relevant to the company.

FINANCIAL INFORMATION FOR THIS MILESTONE

Comprehensive income items

· Marketable securities on the balance sheet at a cost of $5,500,000 are available-for-sale

· Market value at the balance sheet date is $5,235,00

· Prepare the adjusting entry to record the unrealized loss and include in comprehensive income

Tax information and implications

· $1,500 in meal and entertainment expenses show as a permanent difference for tax. Prepare the necessary adjusting entry.

· The company uses straight line depreciation for book and MACRS depreciation for the tax return

· MACRS depreciation was $209,301 higher than book. Prepare the adjusting entry for the deferred tax.

· There have been recent tax structure changes the could impact the company. Peyton Approved has been a C Corp since the beginning of these changes. Peyton provides for taxes at 25% of pretax income (20% Federal, 5% state).

Stockholder Equity

Peyton Approved prides itself on transparency with shareholders and investors. The company has added two storefront locations and launched a new marketing campaign, which is estimated to bring in 20,000 new customers over the next 6 months.

The company expects this expansion will require an additional $1,000,000 of capital and generate an additional $600,000 of after-tax profit. The options are:

1) Issuing an additional $1,000,000 of 10%, 100-par convertible preferred stock (same class as is currently outstanding)

2) Issue an additional $1,000,000 of 8% convertible bonds (same terms as the existing issue)

3) $500,000 each of preferred stock and bonds