| Course | ACC 326 Managerial Accounting (ACC/326) |
|---|---|
| Week | 4 |
| Paper type | Liabilities and equity paper |
| Length | about 1,046 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 326 Week 4
Paying for a Taproom: Current Liabilities, a Five-Year Term Loan, a Ten-Year Lease and Preferred Stock on a Composite Hard Cider Maker's Balance Sheet
[Student Name]
University of Phoenix
ACC/326: Managerial Accounting
Week 4 Assignment
[Instructor Name]
[Date]
The cidery, its lender, its investor and all figures are composites written for a model paper; accounting rules and research findings come from the sources listed.
A composite hard cider maker, set up as a corporation owned by its three founders, ferments about 9,000 barrels of cider a year and sells through its own taproom and to local bars and stores. It is opening a second taproom in a neighboring city. The expansion will cost about $1.1 million for equipment, furnishings and working capital, and the founders cannot fund it from profits alone. They have arranged a bank loan, signed a lease on a building and found an outside investor who will buy preferred stock. Each source of money brings its own obligation, and the balance sheet has to show every one of them in the right place. This paper records the cidery's liabilities and equity at the start of the expansion year.
Current Liabilities
The cidery's ordinary current liabilities include accounts payable to apple growers, yeast and can suppliers of $184,000, wages earned in the last days of the month but not yet paid of $22,500 and federal and state excise taxes on cider removed from the cidery, which are owed monthly or quarterly and total $14,200. Customer deposits for private taproom events, $6,800, are also current liabilities, since the cidery owes either the event or a refund. Weygandt et al. (2021) define current liabilities as obligations expected to be paid within one year or the operating cycle, and each of these qualifies.
The Term Loan
The bank lent $600,000 for five years at 7% annual interest, repaid in 60 equal monthly payments. The monthly rate is 7% divided by 12, about 0.583%. The payment that fully repays the loan is about $11,881. In the first month, interest is $600,000 times 0.583%, or $3,500, so $8,381 of the payment reduces principal. Each month the interest share falls and the principal share rises.
On receiving the money, the cidery debits cash and credits notes payable for $600,000. Each payment debits interest expense and notes payable and credits cash. At the date of the balance sheet, the amortization schedule shows that about $103,858 of principal will be repaid in the next 12 payments. That amount is reported as the current portion of long-term debt, and the remaining $496,142 is reported as long-term.
The Taproom Lease
The new taproom's lease runs ten years at $6,000 a month. Under the lease standard, a lessee recognizes for any lease longer than 12 months, a liability measured at the present value of the remaining payments, matched by an equal right-of-use asset (Financial Accounting Standards Board, 2016). Using the cidery's incremental borrowing rate of 6% a year, or 0.5% a month, the present value of 120 payments of $6,000 is about $540,400. The entry places about $540,400 on each side: the right-of-use asset is debited and the lease liability credited.
Each month, part of the payment reduces the liability and part is interest, while the asset is expensed over the lease term. As an operating lease, the combined cost appears as a single straight-line lease expense of $6,000 a month on the income statement. The balance sheet, however, now shows an obligation of more than half a million dollars that older rules would have left in a footnote.
Preferred Stock
An outside investor bought 2,000 shares of 8%, $100 par cumulative preferred stock at par, paying $200,000. The entry debits cash and credits preferred stock for $200,000. The investor receives $16,000 a year in dividends before the founders receive anything on their common shares. Because the stock is cumulative, if the board skips a year's dividend, the $16,000 accumulates as a dividend in arrears, disclosed in the notes, and must be paid before common dividends resume. The preferred stock has no vote, which was important to the founders.
Common Stock and Retained Earnings
The founders originally bought 300,000 shares of $0.10 par common stock for $150,000. Common stock is recorded at $30,000 and additional paid-in capital at $120,000. Retained earnings, the profits kept in the business since it began, were $410,000 at the start of the year. At year end the board declared the first preferred dividend of $16,000, debiting retained earnings and crediting dividends payable, a current liability until paid.
The Equity Section
After these entries, stockholders' equity consists of preferred stock of $200,000, common stock of $30,000, additional paid-in capital of $120,000 and retained earnings of $394,000 before this year's net income is added. Total contributed capital is $350,000. Separating contributed capital from retained earnings shows readers how much the owners invested and how much profit has been left in the company.
Debt or Equity
The founders weighed the two sources. Interest on the loan is tax deductible, and Graham (2000) estimated that the tax benefit of debt adds meaningfully to firm value for companies that can use it. But debt must be repaid on schedule whether sales are strong or not. Preferred dividends are not deductible and cost more, 8% before tax compared with 7% before a tax saving, yet a missed dividend does not trigger default. In the survey by Graham and Harvey (2001), finance chiefs ranked flexibility near the top of their reasons for how much to borrow, which matches the founders' reasoning: they borrowed what the cidery's cash flow could clearly carry and raised the rest as equity. After the expansion, total liabilities are roughly 1.5 times equity, higher than before but within the bank's covenant. The founders also kept a cushion: the loan payment of about $142,600 a year is less than half of last year's operating cash flow, so a poor apple harvest or a slow first year at the new taproom would squeeze profits without putting the loan at risk. If the new site performs as planned, they intend to prepay part of the loan in year three, which the loan agreement allows without penalty.
Conclusion
The cidery's expansion added a term loan split between current and long-term portions, a lease liability measured at present value and a class of cumulative preferred stock, on top of its ordinary current liabilities. Recording each item correctly shows the owners, the bank and the investor exactly what the company owes and who has a claim on its profits.
References
Financial Accounting Standards Board. (2016). Leases (Topic 842) (Accounting Standards Update No. 2016-02).
Graham, J. R. (2000). How big are the tax benefits of debt? The Journal of Finance, 55(5), 1901-1941. https://doi.org/10.1111/0022-1082.00277
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 326 Week 4 instructions ask
Students in ACC 326 Week 4 are generally asked to explain and account for liabilities and equity. Typical tasks include classifying current and long-term liabilities, calculating interest or loan payments, separating the current portion of long-term debt, recording notes or bonds and explaining the components of stockholders' equity, such as common and preferred stock, additional paid-in capital, retained earnings and dividends. Some prompts add leases, contingencies or treasury stock. Many versions use a case company and ask what the figures mean for its financial position. The paper should show calculations clearly, label entries and explain the effect of each item on the balance sheet, with APA citations of the textbook and standards.
How this ACC 326 Week 4 example is built
A cidery expansion brings together the kinds of financing a small corporation actually uses: supplier credit, a bank loan, a lease for the building and an outside investor. The paper begins with the ordinary current liabilities of a cidery, then works through the loan with its monthly payment and year-one split, the lease with its present value and the preferred stock issue with its dividend terms. Each item is followed by the journal entry and a short explanation of where it appears on the balance sheet. The last sections bring the items together, show the equity section in prose and compare the cost and risk of debt and equity from the founders' point of view.
ACC 326 Week 4 grading rubric: where the points go
Faculty generally split the marks among putting each liability and equity item in its proper category, getting the figures right and explaining them plainly. Current liabilities should include the current portion of long-term debt, loan payments and interest should be calculated from stated terms and equity accounts should be separated by source. Where leases appear, measuring the liability at present value shows command of current standards. Explaining preferred stock features, such as cumulative dividends, adds depth. Strong papers connect the figures to financial position, for example by discussing the debt load or the effect on owners. Consistent numbers, clear entries, tidy headings and APA references finish the grading, with the largest deductions for misclassified debt or equity.
ACC 326 Week 4 help: mistakes to avoid
A common ACC 326 Week 4 error is reporting an entire term loan as long-term, forgetting that principal due within the next year is a current liability. Build or summarize an amortization schedule to find it. Another is treating the full lease payment as rent expense when current standards require a lease liability and right-of-use asset for most leases longer than a year. Students also mix up par value and issue price when recording stock; the excess goes to additional paid-in capital. Explain cumulative preferred dividends, which accumulate if skipped. Keep interest rates monthly when payments are monthly. Finally, compare debt and equity honestly, including control and risk, not only cost.
Related ACC 326 sample papers
Other ACC 326 week samples
- ACC 326 Week 1: Managerial Accounting Environment
- ACC 326 Week 2: Cost Concepts and Allocation
- ACC 326 Week 3: Short-Term and Long-Term Assets
- ACC 326 Week 5: Financial Statement Analysis
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ACC 326 Week 4 questions, answered
What does ACC 326 Week 4 usually cover?
It usually covers liabilities and stockholders' equity: current and long-term liabilities, notes, bonds or loans, the current portion of long-term debt, contributed capital, retained earnings and dividends.
Where can I find a free ACC 326 Week 4 sample paper?
The hard cider maker version on this page walks through the loan, lease and preferred stock with margin notes and can be read in full. Share your case and your first tailored draft is free.
What is the current portion of long-term debt?
It is the principal on a long-term loan or bond that must be repaid within the next 12 months, reported with current liabilities.
How are leases recorded under current US standards?
For most leases longer than 12 months, the lessee records a lease liability at the present value of payments and a matching right-of-use asset.
What does cumulative preferred stock mean?
If the company skips a preferred dividend, the unpaid amount accumulates and must be paid before any dividend goes to common stockholders.
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