Week 5/ACC 290 Week 5 DQ1(What is the Control Environment).docx Week 5 DQ1 What is the control environment? How does the control environment affect a company’s internal controls? What are the negative and positive elements of a control environment?  What are two examples of strong and weak internal controls in organizations where you have worked or have first-hand knowledge? The control environment is the basis of the entire control system that the organization is establishing. The control environment is the value that is placed on integrity and the knowledge that unethical activity will not be tolerated. It is management’s responsibility to express behavior and attitude that enforces this ethical behavior. The control environment affects the internal control by setting a basis of control activities that safeguard assets, enhance accounting reliability, increase efficiency of operations, and compliance with laws and regulations. The negative elements of a control environment are that strict adherence must be applied continuously. Sometimes employees become overworked and underpaid and this is cause for concern because their level of carelessness goes up. Other times people might become slack in their duties over time. Some of the positive elements of a control environment are that responsibility does not lie on one person but many. Each part of a process requires several people to handle it therefore offering little opportunity to do wrong. Other positives are the process of that accountability is established and understood by each individual. An example of a weak internal control I witnessed was in a friend’s tanning bed business. The friend worked during the day and outlined how she expected her teenage employee’s to behave through policies and procedures. To my friends face the employees were the picture of a model employee but when she left in the evenings to go home and let them finish out the night the trouble would begin. The employees were letting all their friends tan for free, selling them tanning products and pocketing the cash. My friend finally put up a camera and goodness was she shocked at what was happening after she left for the evening. A strong control system that I have knowledge of is the system where I presently work. Our everyday policy is outlined in who does what – no procedure is ever fully completed by just one person. For example, my student employees run the registers, I prepare the deposit, another person drops off the deposit, and the final person reconciles the transactions. If I were to do another procedure then I would not be allowed to do the one I am doing now. It is just simply separation of duties so that one person does not hold all of the control or responsibility. References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for businessdecision making (6th ed.). Hoboken, NJ: John Wiley & Sons. Week 5/ACC 290 Week 5 DQ2 (Key Internal Controls ).docx Week 5 DQ2 How wo.

1. Week 5/ACC 290 Week 5 DQ1(What is the Control
Environment).docx
Week 5 DQ1
What is the control environment? How does the control
environment affect a company’s internal controls? What are the
negative and positive elements of a control environment? What
are two examples of strong and weak internal controls in
organizations where you have worked or have first-hand
knowledge?
The control environment is the basis of the entire control
system that the organization is establishing. The control
environment is the value that is placed on integrity and the
knowledge that unethical activity will not be tolerated. It is
management’s responsibility to express behavior and attitude
that enforces this ethical behavior. The control environment
affects the internal control by setting a basis of control
activities that safeguard assets, enhance accounting reliability,
increase efficiency of operations, and compliance with laws and
regulations. The negative elements of a control environment are
that strict adherence must be applied continuously. Sometimes
employees become overworked and underpaid and this is cause
for concern because their level of carelessness goes up. Other
times people might become slack in their duties over time.
Some of the positive elements of a control environment are that
responsibility does not lie on one person but many. Each part of
a process requires several people to handle it therefore offering
little opportunity to do wrong. Other positives are the process
of that accountability is established and understood by each
individual. An example of a weak internal control I witnessed
was in a friend’s tanning bed business. The friend worked
during the day and outlined how she expected her teenage
employee’s to behave through policies and procedures. To my
friends face the employees were the picture of a model

2. employee but when she left in the evenings to go home and let
them finish out the night the trouble would begin. The
employees were letting all their friends tan for free, selling
them tanning products and pocketing the cash. My friend finally
put up a camera and goodness was she shocked at what was
happening after she left for the evening. A strong control
system that I have knowledge of is the system where I presently
work. Our everyday policy is outlined in who does what – no
procedure is ever fully completed by just one person. For
example, my student employees run the registers, I prepare the
deposit, another person drops off the deposit, and the final
person reconciles the transactions. If I were to do another
procedure then I would not be allowed to do the one I am doing
now. It is just simply separation of duties so that one person
does not hold all of the control or responsibility.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011).
Financial accounting: Tools for businessdecision making (6th
ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 DQ2 (Key Internal Controls ).docx
Week 5 DQ2
How would you describe the key internal controls that should be
in place to protect cash in a cash rich environment such as a
merchandiser?
The controls that should be in place to protect a merchandiser in
a cash rich environment are –
Establishment of responsibility
Segregation of duties
Documentation procedures
Physical controls
Independent internal verification
Human resource controls

3. The establishment of responsibility authorizes who handles the
registers. The segregation of duties means that each independent
duty associated with the process is separated therefore the same
person does not complete to related tasks in a row. One person
runs the register, another processes the deposit, another person
verifies the deposit, and another reconciles the amounts by
comparing receipts with deposits. Documentation procedures
include mail receipts, deposit receipts, and cash register tapes
and these items are used to document or backup the information
that is presented. Physical controls include physically placing
cash or deposits in a safe and limiting who has access to certain
procedures. Independent internal verification controls are used
as another step to verify that the sales that were made were
actual counts, through the inventory manager providing physical
counts, the deposit clerk providing deposit receipts, and another
person comparing the two for accuracy. Human resource
controls would include a required time for employees to take
vacations, a rotational shift for employees in duties, and a
background check to check for fraudulent past activities.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011).
Financial accounting: Tools for businessdecision making (6th
ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 DQ3(Sarbanes-Oxley Act of
2002).docx
Week 5 DQ3
What is the Sarbanes-Oxley Act of 2002? Why did it come
about? How have the new rules in the Sarbanes-Oxley Act of
2002 affected the way accounting departments and companies
operate? What are some positive outcomes from these changes?
The Sarbanes-Oxley Act (SOX) requires that all publicly traded
U.S. corporations are required to sustain a satisfactory structure
of internal controls. In addition to internal controls each

4. organization must be able to confirm their compliance by an
independent outside audit. SOX came about because of public
outrage to lack of corporate integrity and accounting
dishonesty. Major corporations such as Enron and WorldCom
were dishonestly reporting accounting figures to investors and
such dishonesty led to the major losses in investor’s money.
SOX requirements have improved corporate honesty in
reporting because their required practices increase corporate
and financial responsibility, increase financial disclosure, and
fight against fraudulent activities. SOX requirements build trust
between investors and clients through compliance activities and
controls. The creation of SOX has been beneficial to businesses
because it has brought changes that improve corporate
transparency, improvement of internal controls, and created
more trust between the general public and the large
organizations. SOX has also forced organizations to provide
reliable and accurate financial statements. By requiring that an
outside and unrelated accounting firm verify the information
accuracy; SOX is eliminating any risk that might have come
from a conflict of interest from a firm that has a stake in the
organization. It has also caused upper management to take
responsibility for corporate activities therefore creating the
environment for ethical behavior.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011).
Financial accounting: Tools for businessdecision making (6th
ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 Learning Team Assignment Financial
Reporting Problem, Part 2.docx

5. Financial Reporting Problem, Part II
ACC/290
Running head: FINANCIAL REPORTING PROBLEM
1
FINANCIAL REPORTING PROBLEM
4
University of Phoenix
Financial Reporting Problem, Part II
PepsiCo is a highly known beverage distributor. The cola
started in the late 1800s in a drugstore, andits original name
was “Brad’s Drink.” In 1898, cola introduced “Brad’s Drink” to
the market. Then, later change the name to Pepsi. It is a large
company that has numerous assets and liabilities. Many
investors and creditors would be willing to work with this
company because they run a good business.
Currents assets are very significant to companies like PepsiCo.
In the balance sheet, “currentassetsare assets that a company
expects to convert to cash or use up within one year or its
operating cycle, whichever is longer. For most businesses, the
cut off for classification as current assets is one year from the
balance sheet date” (Kimmel, Weygandt, & Kieso, 2011, p. 49).
The company can use these assets to support its routine
operations. For example, the company can use the assets to pay
their current expenses.
The common type of current assets consist of cash, marketable
securities, inventory, accounts receivable, prepaid expenses and
additional liquid assets that the company can quickly convert
into cash. However, according to Kimmel, Weygandt, and
Kieso, 2011, companies normally arrange their current assets in
the order in which they anticipate to convert them into cash.

6. Therefore, the proper order for a company to have its assets
listed under the current assets is as follows: “cash, (2) short-
term investments (such as short-term U.S. government
securities), (3) receivables (notes receivable, accounts
receivable, and interest receivable), (4) inventories, and (5)
prepaid expenses (insurance and supplies)”(Kimmel, Weygandt,
& Kieso, 2011, p. 50).
PepsiCo register its assets in the proper order under their
current assets. First on the list are its cash and cash
equivalents, which is anything that can immediately turn into
cash. Some examples of cash and cash equivalents are money,
paper checks, money orders, gift certificates, andgift cards. The
second type of assets is the short-terminvestments. These
investments accounts hold bonds and stocks that the company
can liquidate reasonably fast. The third asset listed is the net
receivables. The net receivable is full amount of money
PepsiCo’s customers owed minus the amount that the company
does not expect to receive from its clients. The next on the list
is the company’s inventory. Inventory is second to last on the
list mainly because the company has to sell its supplies and
certain products may take time to sell. Then other current
assets locatelast on the list. This account contains non
cashvalue assets, such as account receivable and prepaid
expenses.
In general, PepsiCo classify its assets in the following order.
First it has its current assets listed with the total current assets;
followed by long-term investments, property plant and
equipment, goodwill, intangible assets, accumulated
amortization, other assets, deferred long-termasset charges, and
total assets (Yahoo Finance, 2011).
A company’s cash equivalents are its short-term investments.
These investments are highly liquid and can easily be converted
to cash (Stock Analysis on Net, 2011). The short-
terminvestments are so near maturity, usually three months or
less, they have a minimal risk of changes in value because of
changes in interest rates (Stock Analysis on Net, 2011).

7. Compensating balance arrangements that do not legally restrict
withdrawal use of cash amounts also qualify as cash equivalents
(Stock Analysis on Net, 2011). PepsiCo reported $5,943,000 in
cash and cash equivalents in its most recent reporting period
(Yahoo Finance, 2011). Its short-term investments were in the
amount of $426,000 in 2010.
The total current liabilities reported at the end of PepsiCo’s
most recent annual reporting period was, $15,892,000 (Yahoo
Finance, 2011). This included the accounts payable and
short/current long-termdebt. Accounts payable accounted for
$10,994,000. This is the amount the company owes to suppliers
that they have not yet paid. They bought supplies on credit and
received an invoice to be filed. The invoice willbe paid at a
later date and removed from the file. Short/current long-term
debt made up the other $4,898,000. This is the portion of long-
term debt that must be paid in the next 12months. Say PepsiCo
borrowed from their financial institution. The loan is set to be
paid back in 10 years. This is year number four on paying back
the loan. The company record portion of the loanpaid this year
under the short/current long-termdebt.
Current liabilities are billsthe company owes to creditors and
suppliers within a short time, usually 12months. For the
previous accounting period ending as December 26, 2009,
PepsiCo had a total of $8,756,000 in total current liabilities
(Yahoo Finance, 2011). The total current liabilities encompass
accounts payable, payables accrued, accrued expenses, and
notes payable/short-termdebt. The biggest current liability is
accounts payable, whichis the money owed to venders for goods
or services provided to the company. Of the total current
liabilities from 2009 the account payable was the most with
$8,292,000. Notes payable/short-termdebt has total of
$464,000.
The information that has been gathered is useful to employees,
investors, and anypotential creditors. The company can use this
information in various ways depending upon the individual or
groupreviewing the information. In the case of labor unions,

8. employees can use this information as a collective bargaining
agreement (CBA) with management in discussing their
compensation, promotions, and ranking within the company.
Employees, also review financial statements to stay aware of
the stability and profitability of their employer. With this
information employees can assess the ability of the company to
provide retirement benefits and employment opportunities.
Prospective investors review the information gathered from
PepsiCo financial statements to assess the viability of investing
in PepsiCo. Creditors such as banks and other lending
companies will use the information from PepsiCo financial
statements to determine whether or not to lend PepsiCo fresh
working capital or extend debt securities such as long-term bank
loans and debentures. Vendors that extend credit to PepsiCo
will use the financial statement to determine the
creditworthiness of PepsiCo.
In conclusion, this paper is a summation of the financial
standing for PepsiCo, Incorporated. It states details of why the
assets are in proper order, how PepsiCo classify its assets, the
definition of cash equivalents, the current liabilities for the
recent annual reporting period, and current liabilities for the
previous annual reporting period. It also provides how and why
potential creditors, investors, and employees may use the
information that has been gathered to make important financial
decisions.
PepsiCo, Inc. (PEP)
Top of Form
Balance Sheet
Bottom of Form
View: Annual Data | Quarterly Data

9. All numbers in thousands
Period Ending
Dec 25, 2010
Dec 26, 2009
Dec 27, 2008
Assets
Current Assets
Cash And Cash Equivalents
5,943,000
3,943,000
2,064,000
Short TermInvestments
426,000
192,000
213,000
Net Receivables
6,323,000
4,624,000
4,683,000
Inventory
3,372,000
2,618,000
2,522,000
Other Current Assets
1,505,000
1,194,000
1,324,000
Total Current Assets

10. 17,569,000
12,571,000
10,806,000
Long TermInvestments
1,368,000
4,484,000
3,998,000
Property Plant and Equipment
19,058,000
12,671,000
11,663,000
Goodwill
14,661,000
6,534,000
5,124,000
Intangible Assets
13,808,000
2,623,000
1,860,000
Accumulated Amortization
-
-
-
Other Assets
1,689,000
965,000
2,324,000
Deferred Long Term Asset Charges
-
-
219,000
Total Assets
68,153,000
39,848,000
35,994,000

11. Liabilities
Current Liabilities
Accounts Payable
10,994,000
8,292,000
6,494,000
Short/Current Long Term Debt
4,898,000
464,000
369,000
Other Current Liabilities
-
-
1,924,000
Total Current Liabilities
15,892,000
8,756,000
8,787,000
Long Term Debt
19,999,000
7,400,000
7,858,000
Other Liabilities
6,729,000
5,591,000
7,017,000
Deferred Long Term Liability Charges
4,057,000
659,000
226,000
Minority Interest

12. 312,000
638,000
-
Negative Goodwill
-
-
-
Total Liabilities
46,989,000
23,044,000
23,888,000
Stockholders' Equity
Misc Stocks Options Warrants
(109,000)
(104,000)
-
Redeemable Preferred Stock
-
-
(97,000)
Preferred Stock
-
-
-
Common Stock
31,000
30,000
30,000
Retained Earnings
37,090,000
33,805,000
30,638,000
Treasury Stock
(16,745,000)

13. (13,383,000)
(14,122,000)
Capital Surplus
4,527,000
250,000
351,000
Other Stockholder Equity
(3,630,000)
(3,794,000)
(4,694,000)
Total Stockholder Equity
21,273,000
16,908,000
12,203,000
Net Tangible Assets
(7,196,000)
7,751,000
5,219,000
Currency in USD (Yahoo Finance, 2011).
PepsiCo, Inc. (PEP)
Top of Form
Income Statement

14. View: Annual Data | Quarterly Data
All numbers in thousands
Period Ending
Dec 25, 2010
Dec 26, 2009
Dec 27, 2008
Total Revenue
57,838,000
43,232,000
43,251,000
Cost of Revenue
26,575,000
20,099,000
20,351,000
Gross Profit
31,263,000
23,133,000
22,900,000
Operating Expenses
Research Development
-
-
-
Selling Generaland Administrative
22,814,000
15,026,000
15,901,000

15. Non Recurring
-
-
-
Others
117,000
63,000
64,000
Total Operating Expenses
-
-
-
Operating Income or Loss
8,332,000
8,044,000
6,935,000
Income from Continuing Operations
Total Other Income/Expenses Net
68,000
67,000
41,000

16. Earnings Before Interest And Taxes
9,135,000
8,476,000
7,350,000
Interest Expense
903,000
397,000
329,000
Income Before Tax
8,232,000
8,079,000
7,021,000
Income Tax Expense
1,894,000
2,100,000
1,879,000
Minority Interest
(18,000)
(33,000)
-
Net Income From Continuing Ops
7,055,000

17. 6,311,000
5,142,000
Non-recurring Events
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect Of Accounting Changes
-
-
-
Other Items
-
-
-

18. Net Income
6,320,000
5,946,000
5,142,000
Preferred Stock And Other Adjustments
-
-
-
Net Income Applicable To Common Shares
6,320,000
5,946,000
5,142,000
Currency in USD (Yahoo Finance, 2011).
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011).
Financial accounting: Tools for business decision making (6th
ed.). Hoboken, NJ: John Wiley & Sons.
Stock Analysis on Net. (2011). Cash and Cash Equivalent, At
Carrying Value. Retrieved from
http://stock-analysis-on.net
Yahoo Finance. (2011, June). PepsiCo, Inc. (PEP). Retrieved
from http://finance.yahoo.com/q/bs?s=PEP&annual

19. Week 5/ACC 290 Week 5 Learning Team Reflection
Summary.docx
Week Five Reflection Summary
ACC/290
Running head: REFLECTION SUMMARY
1
REFLECTION SUMMARY
4
University of Phoenix
Week Five Reflection Summary
The team members’ knowledge continues to grow. Week five
mainly covered the effect of the Sa Sarbanes-Oxley Act of 2002
on internal controls.
The Sarbanes-Oxley Act of 2002 was put into place because of
shady accounting practices. One of the biggest accounting
scandals was the Enron scandal in 2001. Enron was one of the
largest producers of natural gas and electricity. To the outside
world, it was the company to invest in. It mostly started in
November 1997. Enron bought out a partner’s share in a
company called JEDI (Time Specials, 2011). They sell it to a
firm they created called Chewco that an Enron manager would

20. run (Time Specials, 2011). This is how Enron begins to hide
their debt. In November 2001, Enron admits to accounting
errors that inflated income by $586 million since 1997, and on
December 2, 2001, Enron filed for bankruptcy (Time Specials,
2011). The Securities and Exchange Commission discovered
accounting scandals and lies from Enron and its accounting firm
Arthur Anderson, which causes investors to lose billions
(Ponzio, 2007).
Therefore, the Sarbanes-Oxley Act of 2002 demand that
managers of the publicly traded companies set up and preserve
structures of internal control on the business’ financial
processes. The act also demands that top management of the
companies provide certifications in regard to the accuracy of
their financial statements. This system has changed greatly the
practice of accounting because it not only regulates the
financial records of the businesses, but also it proposes
penalties for their abuse. The act describes the kind of records
companies should record and their length. It also makes sure
every financial data is correct because one function of the act is
to prevent and detect falsification of data made by
organizations. Therefore, because of the Sarbanes-Oxley Act of
2002 the responsibility of employees has increased in providing
accurate financial report, which in turn minimizes the
occurrence of financial errors.
Basically, there are five primary components of internal
controls. Control Environment is top management clarifying
the organization will not tolerate unethical activity and that it
values integrity. Risk Assessment is the company identifying
and analyzing factors that create risks for the business and how
to manage these risks. Control Activities are to curtail
occurrences of fraud. Information and Communication
capturing and communicating pertinent information from the top
of the organization down and vice versa along with
communicating to necessary external parties. Monitoring
periodically monitor the internal control system to ensure
adequacy and report deficiencies to necessary management.

21. In summary, the role of internal controls to comply with the
Sarbanes-Oxley Act (2002) is to safeguard the assets of a
company, enhance reliability of accounting records, increase
efficiency of operations, and ensure compliance with laws and
regulations.
References
Time Specials. (2011). Behind the Enron Scandal. Retrieved
from http://www.time.com
Joe Ponzio. (2007, August 29). Enron: Accounting Scandal or
Bad Business.
Retrieved from http://www.fwallstreet.com
Week 5/ACC 290 Week 5 Week Five Exercises BE5-1, BE5-2,
BE6-5, BE6-7, BE7-4, BE7-5, BE7-6 .docx
ACC/290 Week 5
Week Five Exercises
ACC/290
University of Phoenix

22. BE5-1
A. Sales: $181,500
B. Cost of goods sold: $41,200
C. Gross profit: $38,000
D. Operating expenses: $17,900
E. Operating expenses: $8,500
F. Net income: $63,400
BE5-2
Pocras Company
Inventory 900
900
Wedell Company
Accounts Rec. 900
900
Cost of Goods Sold 590
590
BE6-5
LIFO
FIFO

23. Purchases:
6 X 100
6 X 100
7 X 200
7 X 200
8 X 140
8 X 140
Cost of goods available for sale
3,120
3,120
Ending inventory
1,160
1,400
COGS
$ 1,960
$ 1,720
Using FIFO, COGS would be $240 less under this method. The
COGS being $240 less under the FIFO method would be the
phantom profit as well.
BE6-7
Cost Market LCM

24. Cameras 12,500 13,400 12,500
Camcorders 9,000 9,500 9,000
DVDs 13,000 12,200 12,200
LCM value is $33,700 $33,700
BE7-4
A. Physical controls
B. Human resource controls
C. Independent internal verification
D. Segregation of duties
E. Establishment of responsibility
BE7-5
Cash: 975.74
Cash (short/over): 12.88
Sales Revenue: 988.62
BE7-6
A. Documentation procedures
B. Independent internal verification
C. Physical controls
D. Establishment of responsibility
E. Segregation of duties
Answer the following summary question: What is the role of the
Sarbanes-Oxley Act of 2002 in relation to the types of internal
controls used by corporations such as those illustrated in
Exercises 7-4, 7-5, and 7-6?
The Sarbanes-Oxley (SOX) is an act passed by U.S. Congress in
2002 to protect investors from the possibility of fraudulent
accounting activities by corporations.

25. The Sarbanes-Oxley Act of 2002 has a mandate that requires
senior management to certify the accuracy of the reported
financial statements. Also, one of the requirements is that
management and auditors establish internal controls and
reporting methods on the adequacy of those controls. However,
maintaining these requirements is for publicly traded
companies, which is very expensive to establish and maintain
the required internal controls that are sought out intentionally
and required by the SOX Act.
Supposedly, the Sarbanes-Oxley Act has yielded tighter
regulatory compliance, stricter corporate governance policies,
more responsibility by a company to develop, enact, and
actually enforce more potent internal control elements within
their organization. Plus, the Sox Act has helped companies
establish and strengthen past and present procedural policies,
eliminate redundancies, uncover deficiencies and detecting
weaknesses, and so on.
Week 5/ACC 290 Week 5 Weekly Summary.docx
Summary
Week 5 Summary
In our discussion of internal controls and the control
environment I learned that policies and procedures are put into
place by an organization to protect not only the organization
from dishonesty but to protect the employee. The most effective
control that I learned was the separation of duties. The
separation of duties control establishes the requirements that are
required for a process such as, no one person can handle
consecutive duties that are related to one activity. An example
of this would be an employee orders departmental supplies, the
order is then sent to a supervisor for approval, once approved
the order then goes to finance for account codes, and finally the
order is placed through procurement. Having all these steps

26. involved is for the benefit of securing assets. Each person
involved in the activity of this order is assuring that the
supplies were legitimate, approved by management, and
financially acceptable.
Another example of separation of duties is and employee travel
reimbursement. The employee turns over their reimbursable
travel receipts to their manager who signs off on the
reimbursement as an approved activity. The manager then
forwards the reimbursement to the accountant who creates the
reimbursement voucher and attaches the signed documentation
to the voucher. The voucher then goes through to the accounting
system for approval and finally payroll produces the
reimbursement into the employee’s checking account.
In each of these examples there are controls in place that
prevent someone from having complete control without having
to get approval. These types of control environments help
achieve the requirements of the Sarbanes-Oxley Act of 2002.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011).
Financial accounting: Tools for businessdecision making (6th
ed.). Hoboken, NJ: John Wiley & Sons.