week 5

 

This week, you’ll assume the role of Senior Accountant with SunsTruck Sunglasses.

NAME:

INSTUCTOR:

DATE:

Assignment 2

FINANCE & ACCOUNTING – SENIOR ACCOUNTANT Analysis

Due Date: Week 5

Note: While representative of possible situations faced by SunsTruck Sunglasses, all scenarios in this assignment are fictional.

Real Business

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business. Financial and accounting information helps these businesses make educated financial decisions, such as whether or not to continue partnering with a retail supplier. While often smaller businesses, it is equally important for these retail suppliers to use financial and accounting data to make educated decisions, such as the best approach to gaining additional funding.

Your Role

This week, you’ll assume the role of Senior Accountant with SunsTruck Sunglasses.

What Is a SENIOR ACCOUNTANT? Senior accountants take ownership of reporting costs, profitability, margins and expenditures for a given business. They use the principles of accounting to analyze sales information, create financial reports, make recommendations about the financial health of the company, and more. They are also responsible for training junior accounting staff.

For the last six months, SunsTruck has partnered with the discount retail store to run a pop-up sunglasses stand in their stores for a big summer promotion. Due to the high customer purchase rate, the store has requested stock for five additional stores. SunsTruck needs to increase its capacity to meet the additional demand. In order to do so, SunsTruck needs additional money.

In this assignment, you will need to help determine which type of financing option is best for your company and train your junior accountants on the accounting cycle and financial statements.

Instructions

Step 1: FINANCING

The junior accounting team has assembled a Financing Report that (a) offers three options for securing the additional funds required to meet the new order; and (b) details the criteria Shaun, the owner of SunsTruck, would like you to consider when choosing one of the three options. Based on this report:

· Identify which financing option you think is the best option for SunsTruck to pursue given Shaun’s constraints. Underline your selection:

Option 1: Equity

Option 2: Debt

Option 3: Debt + Self-Financing

Explain the rationale for your decision.

Note: You should complete Steps 2 & 3 after reading the material in Week 5.

Step 2: ACCOUNTING CYCLE

A junior accountant is working to get everything in order for the new financing and has come to you with a question about what do next in the accounting cycle.

· Read the email the junior accountant sent you and identify the best next step to take in the accounting cycle. Explain your reasoning.

Step 3: FINANCIAL STATEMENTS

A potential investor has been identified, but before it is willing to commit, it has requested information about SunsTruck’s current debt from the junior accountants.

Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Underline your selection:

Income Statement

Balance Sheet

Cash Flow Statement

Explain to your junior accountants why you are giving them this financial statement and where the debt information is located.

Step 4: FINANCIAL ANALYSIS

If you were the type of financier selected in Step 1, would you invest in SunsTruck? Explain the rationale for your decision.

1 BUS100: INTRODUCTION TO BUSINESS

ASSIGNME NT

Finance and Accounting

Senior Accountant Analysis

1

DU E DATE

Week 5

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SHAUN’S CRITERIA

Hi Team,

I wanted to provide you some guidelines as you determine how we’ll finance our
expansion. Please give this careful consideration, as we need to get this right.

1. I estimate we’ll need $150,000 to increase capacity in order to stock the five
additional pop-up stands

2. We’ll need to make sure we have additional funds available to increase our
marketing efforts to stimulate demand

3. I’d like to maintain or increase our profit margins

4. If we’re successful over the next two years, we’ll likely seek additional capital to
expand into more stores, so I’d like to do all we can now to enhance our
credibility

We need to move on this quickly, so I’d like an answer by the end of the week.

-Shaun

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FINANCING OPTIONS

Option 1: Equity
Raise $150,000 from a venture capital firm in exchange for 30% of the company

Option 2: Debt

Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years

Option 3: Debt + Self-Financing

Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years, and self-
finance the remaining $50,000

JUNIOR ACCOUNTANT EMAIL

Hi,

I’m working on expenses from the last quarter for the revised income statement, but I’m
unsure of what to do next. I grouped similar transactions to compile the following list:

How would you like me to proceed given where we are in the process? Thanks in advance
for your guidance.

Best,

Jenna S.

• automotive maintenance cost

• travel expenses

• training and development costs

• office rent

• raw material purchases

• inventory purchases

• marketing expenses

• payroll expenses

• interest expenses

• technology purchases

• office supplies expenses

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SUNSTRUCK SUNG LASSES
INCOME STATEMENT

For Year Ended September 30, 2016

REVENUES

Sales revenues

Other revenue

Total revenue

COST OF GOODS SOLD (COGS)

GROSS PROFIT

EXPENSES

Selling, general and administrative expenses

Marketing and advertising expenses

Total expenses

INCOME FROM OPERATIONS

OTHER EXPENSES

Interest expense

$778,590

$11,000

$789,590

($428,225)

$361,365

($78,959)

($55,271)

($153,050)

$208,314

($51,000)

$157,315

Income tax expense

NET INCOME

PRETAX INCOME

($55,060)

$22,500

Depreciation and amortization ($18,820)

$102,255NET INCOME

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SUNSTRUCK SUNG LASSES
BALANCE SHEET

At September 30, 2016

ASSETS

CURRENT ASSETS

Cash

Accounts receivable

Merchandise inventories

Total current assets

LONG-TERM ASSETS

Property, truck and equipment

TOTAL ASSETS

LIABILITIES

CURRENT LIABILITIES

$145,500

$468,000

$613,500

$37,500

LONG-TERM LIABILITIES

Truck loan

Accounts Payable

$28,000

$55,220

$62,280

$40,000

B+M loan $360,000

Total long-term liabilities

TOTAL LIABILITIES $479,500

SHAREHOLDERS’ EQUITY

CONTRIBUTED CAPITAL

$12,000

RETAINED EARNINGS

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

TOTAL SHAREHOLDERS’ EQUITY

$122,000

$442,000

$134,000

$613,500

Operating loan $42,000

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$75,000

SUNSTRUCK SUNG LASSES
STATEMENT OF CASH FLOWS

For Year Ended September 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Cash collected from customers

Cash paid to suppliers and employees

Cash paid for interest

Cash paid for taxes

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid on truck loans

$99,140

($20,000)

($529,580)

($50,000)

($55,060)

$733,780

Net cash used for investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from operating cash loan

($60,000)

$12,000

NET INCREASE IN CASH DURING YEAR

CASH AT BEGINNING OF YEAR

Net cash provided by financing activities

($23,255)

CASH AT THE END OF YEAR TO DATE $27,885

$12,000

$51,140

Cash paid on B+M loans ($40,000)