Week 5 assignment 2
ASSIGNMENT
Finance and Accounting
Senior Accountant Analysis (My role for this week)
D U E DAT E
Week 5
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.
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 expense
SUNSTRUCK SUNGLASSES
INCOME STATEMENT
For Year Ended September 30, 2016
REVENUES
Sales revenues $778,590
Other revenue $11,000
Total revenue $789,590
COST OF GOODS SOLD (COGS) ($428,225)
GROSS PROFIT $361,365
EXPENSES
Depreciation and amortization ($18,829)
Selling, general and administrative expenses ($78,959)
Marketing and advertising expenses ($55,271)
Total expenses ($153,050)
INCOME FROM OPERATIONS $208,314
OTHER EXPENSES
Interest expense ($51,000)
Pretax $157,315
Income tax expense ($55,060)
Net income $102,255
SUNSTRUCK SUNGLASSES
BALANCE SHEET (9-30-16)
ASSESTS
Current Assests
Cash $28,000
Acct Recvbles $55,220
Merchandise Invty $62,280
Total current assets $145,500
Long-term Assets
Property, truck & equipment $468,000
Total assets $613,500
LIABILITIES
Current Liabilities
Acct Payable $37,500
Long-term Liabilities
Truck loan $40,000
B+M loan $360,000
Operating loan $42,000
Total long-term liabilities $442,000
Total Liabilities $479,500
SHAREHOLDERS’ EQUITY
Contributed Capital $12,000
Retained Earnings $122,000
Total Shareholders’ Equity $134,000
Total Liabilities and Shareholders’ Equity $613,500
STATEMENT OF CASH FLOWS
Cash collected from customers $733,780
Cash paid to suppliers/employees ($529,580)
Cash paid for interest ($50,000)
Cash paid for taxes ($55,060)
Net cash provided by activities $99,140
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid on truck loans ($20,000)
Cash paid on B + M loans ($40,000)
Net cash used for investing activities ($60,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from operating cash loans $12,000
Net cash provided by financing activities $12,000
NET INCREASE IN CASH DURING YEAR $51,140
CASH AT BEGINNING OF YEAR ($23,252)
CASH AT THE END OF YTD $27,885)
