Question: DISCUSSION: 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.
In this assignment, you will assume the role of Senior Accountant with fictional company "SunsTruck Sunglasses".
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.
ASSIGNMENT INSTRUCTIONS: First, read the following email from SunsTruck owner Shaun:
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 fiveadditional pop-up stands 2. We'll need to make sure we have additional funds available to increase ourmarketing 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 toexpand 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
After you read the email, write a four to six page paper in which you discuss the following for the company:
PART 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 and discuss which financing option you think is the best option for SunsTruck to pursue given Shaun's constraints. Your options are as follows:
• 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 selffinance the remaining $50,000)
PART 2: ACCOUNTING CYCLE
A junior accountant is working to get everything in order for the new financing and has sent you the following 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:
- Inventory purchases
- Automotive maintenance cost
- Marketing expenses
- Travel expenses
- Payroll expenses
- training and development costs
- Interest expenses
- office rent
- Technology purchases
- raw material purchases
- Office supplies expenses
How would you like me to proceed given where we are in the process? Thanks in advance for your guidance.
Best,
Jenna S.
After reading the email, discuss the best next step to take in the accounting cycle. Explain your reasoning.
PART 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.
• From the three financial statements identified in "ATTACHMENT 2 FINANCIAL STATEMENTS" Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Explain your reasoning:
• 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.
PART 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
INSTRUCTIONS: Your essay should be typed, double-spaced on standard-sized paper (8.5" x 11") with 1" margins on all sides. You should use 12 pt. Times New Roman font.
Information related to above question is enclosed below:
Attachment:- ATTATCHMENT2FINANCIALSTATEMENTS.rar