University of Tennessee Knoxville Accounting Peloton Interactive Inc Inventory Overview Paper

We are working on a project the company’s inventory and talking about it. I will give you the instructions of it in the attached file but I don’t want you to do the whole thing. I just want you to finish about 3 questions and that’s it. The company is called Peloton interactive Incand you have to use “SEC EDGAR” to find the solutions of the answer, the link will be provided in the attached instruction file.

The questions that I want you to work on are the following:

1) Has the company had any significant issues with accounting for inventory over the last five

years? If so, think about how this impacts risks.

2)How is inventory discussed in the company’s earnings announcements? (level of importance)

What do you perceive as the biggest risk to inventory for this company?

ACCT 311 FALL 2023 – Inventory Group Project
General Instructions & Due Date: Upload one Microsoft Word document per group (.doc or .docx
file extension) to Canvas by November 21, 2023 at 11:59pm (and also upload to Canvas your peer
evaluation by November 21). Both the “Group Project submission” and the “Peer Evaluation
submission” links will be located in the “Assignments” link on the left side of the Canvas page. I have
pre-divided you into random groups of fellow students (from your class’s section). Refer to the
“Inventory Project” Module and look in the spreadsheet named “Invty Groups” to see your assigned
group and your group’s assigned company (corresponds to your Group #).
Your group will compose a Memorandum addressed to the partners at Global Investment Partners. The
memo should be a maximum of two-pages, and single spaced. Groups may include appendices with
graphs, charts, or other information outside of the two-page limitation, (i.e., don’t write more than two
single-spaced pages of words, but you then can include charts/graphs that you’ve referenced in the body
of the memo and these charts/graphs/appendices will NOT count towards the two-page limit).
Instructions for Completing Memo- Read fully and carefully:
Objective:
The purpose of this group project is to help students become familiar with the SEC’s EDGAR database,
the disclosures surrounding inventory, and demonstrate formal written communication skills as expected
within the profession. The SEC’s EDGAR database is an online public database where public companies
file certain required documents with the SEC. You are acting as an associate at a hedge fund (Global
Investment Partners) and your boss has asked your team to draft a memo explaining how a company
accounts for its inventory. You will be required to provide an overview of the company’s inventory
types, accounting methods, and disclosures. After providing an overview of the company, you will
assess the inventory risks, appropriateness of the chosen accounting methods, and the quality of the
company’s inventory disclosures. Business writing expected.
Gathering information about the company:
To compile data, use the SEC EDGAR (https://www.sec.gov/edgar.shtml) database and other targeted
web searches to identify relevant information about the company’s inventory. Refer to “Resources to
gather information” on pages 3-9 of this document for help with finding various information
about your company’s inventory. I expect every person in the group to fully read this entire
document. Groups will probably find the most useful information in their company’s most recent
10-K EDGAR filing (the 10-K is the annual audited financial report required to be filed by public
companies) and recent 10-Qs (quarterly financial reports). The purpose of this step is to help students
understand how a company accounts for inventory and then to communicate that understanding to a
target audience. Here are some points (Ps) or questions (Qs) to consider when explaining the business to
the reader (these should be in your memo):
•
•
P: Provide an overview of the types of inventory that the company has on hand.
Q: What accounting method does the company use for inventory? Has this method changed in
the last five years (check prior years’ filings)? If so, think about how this impacts risks.
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ACCT 311 FALL 2023 – Inventory Group Project
•
•
Q: Has the company had any significant issues with accounting for inventory over the last five
years? If so, think about how this impacts risks.
Q: How is inventory discussed in the company’s earnings announcements? (level of importance)
Assessing inventory risks, accounting methods, and disclosure quality
Based on your review of the financial statements and other sources, address the following questions:
•
•
•
What do you perceive as the biggest risk to inventory for this company?
Do you think that the chosen accounting method accurately represents the economic substance of
the inventory transactions made by the company?
Based on the company’s disclosures, do you think that an investor would clearly understand how
the inventory risks that the company faces? Do the disclosures indicate the appropriateness of the
chosen accounting methods? How would you evaluate the company’s overall disclosure quality?
Group Project Requirements
Draft a memo addressed to the partners at Global Investment Partners. The memo should be no longer
than two-pages single spaced. However, as previously mentioned, you can include appendices with
graphs, charts, or other information outside of the two-page limitation.
Please ensure that you have used proper grammar and punctuation. Given the limited amount of space
and the large amount of information that is required, please ensure that the memo is free from redundant
language and irrelevant or tangential topics.
This is a Group project, and you should be consulting ALL of your fellow group members before
asking me any questions. Any emails sent to me regarding the project must cc all group members
and the title of the email must be “Group Project – Company Name.” You must also confirm that
you’ve already discussed the question with your entire group and your entire group has the same
question.
Grading Rubric (Your project is 10% of your semester grade):
Gathered appropriate relevant information about company’s inventory (including
inventory types, changes in methods, significant issues, etc.)
40% of
project grade
Appropriate identification and assessment of inventory risks and evaluation of
appropriateness of accounting methods and disclosures
40% of
project grade
Professionalism of memo (utilized professional business language, free of
grammatical and formatting errors, etc.)
10% of
project grade
Team Evaluation of your individual contribution to the project (Peer Evaluation*)
10% of
project grade
*You are encouraged to begin your group work early so that you can identify any potential ‘free rider’
problems. If a free rider problem emerges, please contact me immediately so that the non-contributing
team member may be assigned a new company to complete as an individual project. If the free rider
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ACCT 311 FALL 2023 – Inventory Group Project
problem is not identified early enough to assign the non-contributing member a separate company, then
I reserve the right to separately interview each team member and adjust the individual grades
accordingly based on the peer evaluation process.
RESOURCES TO GATHER INFORMATION:
The best resource for you will be the SEC’s EDGAR system. All companies that are listed on U.S.
exchanges are required to file registration statements, periodic reports, and other forms through the
EDGAR system.
The easiest way to access a company’s information on EDGAR is to find the Central Index Key (CIK)
or ticker symbol and use the “Company Lookup” function. Below, I’ve entered Walmart’s ticker
symbol (“WMT”) *Make sure you’re clicking on the correct entity- see “Walmart Inc” is first below:
After performing your search, you will see detailed information about the company, including the
industry (SIC), where the entity operates, and the most recent regulatory filings.
The filings that will be of most interest to you are Forms 10-K (annual reports), 10-Q (quarterly reports)
and 8-K (periodic filings). Forms 10-K and 10-Q filings contain the financial statements. These
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ACCT 311 FALL 2023 – Inventory Group Project
resources will be especially helpful to you as you come to an understanding of the company’s inventory
balances. You can sort by filing type to make finding a specific document type easier (ex: type in “10K” into filing type filter, as shown in the screenshot below):
I selected the first Form 10-K filings from the list (filed on 2020-03-20- [March 20th]). You’ll notice that
each Form 10-K filing has several documents. Typically, the financial statements are included in the
“Form 10-K” and sometimes they are listed in Exhibit 13 (EX-13).
I clicked on the FORM 10-K .htm link (highlighted above) to get to the Form 10-K (see below):
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ACCT 311 FALL 2023 – Inventory Group Project
Since Form 10-K filings are large regulatory documents (often 100+ pages), you will want to be targeted
in the material that you review. If you scroll down to the Table of Contents section, then you will see
links to different sections. The sections that will be especially helpful for you as you gather
information about the company are the following sections:
•
•
•
•
•
•
Business (Item 1)
Risk Factors (Item 1A)
Management’s Discussion & Analysis (Item 7) (including “Critical Accounting Estimates”)
Financial Statements and Supplementary Data (Item 8)
Controls and Procedures (Item 9A)
Exhibits, Financial Statement Schedules (Item 15)
Be aware that companies could have slightly different names for these sections or they might combine a
couple of these topics together, but you will be able to find this general information in every Form 10-K
filing. See Walmart’s Table of Contents below (you can click on these in EDGAR):
Another way to gather information about inventory is to hit CONTROL + F and do a search for
“inventory” or “inventories”. Using this, I found a section where Walmart discusses inventory as a
Critical Accounting Estimate.
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ACCT 311 FALL 2023 – Inventory Group Project
Walmart also discusses how they account for inventory under Note 1. Significant Accounting Policies.
All companies are required to discuss their Significant Accounting Policies.
You will also find a section where the auditor discusses the outcome of the financial statement audit and
the audit of internal control over financial reporting. If a company has weak controls around any part of
their company, then it will be disclosed in this section. EY indicates that Walmart’s controls are
effective and their financial statements comply with GAAP.
You will also want to consider how companies report their performance to the public. Most companies
will announce their performance to the public before filing a Form 10-K or Form 10-Q filing. You can
find these announcements in Form 8-K Item 2.02 filings. First, I filter by typing 8-K and I notice that
the 8-K filed on 2020-08-18 (August, 18, 2020) contains Item 2.02:
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ACCT 311 FALL 2023 – Inventory Group Project
I click on this document and notice that it contains a link that says PRESS RELEASE. There could be
variation in how companies include their earnings announcement in the Form 8-K filing, so you might
need to look through a few of the links.
I click on the first link and it appears to be Walmart’s earnings announcement for Quarter 2 of the 2021
fiscal year. Inventories are only mentioned on the balance sheet and statement of cash flows, but I can
look at the year over year comparisons and skim the press release and get a general feel for how
Walmart has performed over the last quarter.
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ACCT 311 FALL 2023 – Inventory Group Project
Another resource that you can use is the archival WSJ subscription through the UTK library’s Articles
& Databases (https://libguides.utk.edu/databases). Using the link to Articles & Databases, you can
search for the “Wall Street Journal”:
I then can click the top link and it will pull up all of the WSJ articles since 2008.
I am going to search for Walmart and Inventory in all of the document text:
This allows me to see all of the articles that have Walmart and Inventory in the last 12 years:
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ACCT 311 FALL 2023 – Inventory Group Project
I can then read some recent ones to see if there’s any relevant information I’d like to include in my
inventory analysis. There are many other resources that you can use (including general web
searches). Do not feel constrained to just EDGAR or the WSJ (however, at a minimum, you
should look at your company’s most recent 10-K and latest several 10-Qs). You can find relevant
information on financial blogs (e.g., Seeking Alpha) or social media. However, remember that
some sources of information are more credible than others. Have fun exploring the wealth of
public information that’s available for your company!
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