Sunstruck Sunglasses Income Statement For Year Ended Septemb

Sunstruck Sunglassesincome Statementfor Year Ended September 30 2016r

Sunstruck Sunglasses income statement for the year ended September 30, 2016, provides an overview of the company's financial performance during that period. It details revenues, costs, expenses, and profitability, which are vital for assessing the company's financial health, planning future operations, and making informed business decisions. The statement reports total revenues of $789,590, derived from sales ($778,590) and other revenue ($11,000). The cost of goods sold (COGS) amounts to $428,225, resulting in a gross profit of $361,365. Expenses include depreciation and amortization of $18,820, selling, general, and administrative expenses of $78,959, and marketing and advertising expenses of $55,271, totaling $153,050. The operating income stands at $208,314, while interest expenses of $51,000 reduce pre-tax income to $157,315. Income tax expense of $55,060 leaves a net income of $102,255. These figures offer insights into sales efficiency, cost management, and profitability.

The balance sheet as of September 30, 2016, summarizes SunsTruck’s assets, liabilities, and shareholders’ equity. Current assets total $145,500 and include cash ($28,000), accounts receivable ($55,220), and merchandise inventories ($62,280). Long-term assets comprise property, trucks, and equipment valued at $468,000, culminating in total assets of $613,500. Liabilities total $479,500, with current liabilities and long-term obligations. Current liabilities include accounts payable ($37,500), while long-term liabilities consist of truck loans ($40,000), B+M loans ($360,000), and an operating loan ($42,000). Shareholders’ equity comprises contributed capital ($12,000) and retained earnings ($122,000), summing to $134,000.

The statement of cash flows for the year ending September 30, 2016, demonstrates how cash moved within the company. Operating activities generated a net cash inflow of $99,140, primarily from cash collected from customers ($733,780) minus cash paid to suppliers and employees ($529,580), along with interest ($50,000) and taxes ($55,060). Investing activities used cash for purchasing trucks and other assets, totaling $60,000, indicating cash outflows. Financing activities contributed $12,000 from an operating cash loan, reflecting cash inflow from external funding sources. The net increase in cash during the period was $51,140, resulting in ending cash balance of $27,885, up from a beginning balance of ($23,255).

These financial statements collectively enable a comprehensive analysis of SunsTruck’s fiscal stability, operational efficiency, and liquidity position. They can inform strategic decisions related to expansion, funding, and operational adjustments, exposing areas for improvement and potential risk factors.

Paper For Above instruction

Introduction

Understanding the financial health of a business is crucial for making informed strategic decisions, attracting investors, and ensuring sustainable growth. The financial statements—comprising the income statement, balance sheet, and statement of cash flows—are fundamental tools that provide vital insights into a company's operational efficiency, profitability, liquidity, and financial stability. In this essay, I will analyze SunsTruck Sunglasses’ financial statements for the fiscal year ending September 30, 2016. Additionally, I will evaluate the company’s options for securing funding to facilitate expansion, discuss the appropriate step in the accounting cycle for expense categorization, identify which financial statement best displays the company’s debt data for potential investors, and assess the viability of investing in SunsTruck from a financier’s perspective.

Part 1: Financing Options and Selection

Shaun, the owner of SunsTruck, has identified three financing options to raise $150,000 for expanding business operations: equity financing via venture capital, debt financing through a loan, and a hybrid approach combining a lower-interest loan with self-financing. The first option involves raising capital by giving up 30% of ownership, which grants the venture capitalist influence but preserves company control. However, giving away a significant equity stake might dilute the founders’ ownership and future earnings, making this option less appealing if retained control is a priority.

The second option involves taking a loan of $150,000 at 10% interest to be repaid over seven years. This form of debt does not dilute ownership but introduces fixed repayment obligations and interest expenses that could affect cash flow and profitability in the short term. The third option combines a $100,000 loan at 7% interest with self-financing of the remaining $50,000. This hybrid minimizes interest costs and preserves ownership but still requires significant cash outlay from the owner, potentially straining resources.

Given Shaun’s desire to maintain or increase profit margins while bolstering credibility for future growth, the best path appears to be the third option: securing a moderate loan with lower interest and supplementing with self-financing. This approach balances debt costs and ownership retention, affording greater control and flexibility without heavily impacting cash flow or diluting ownership. It limits financial obligations to manageable levels and demonstrates to future investors that the company is committed and capable of funding growth independently, which enhances credibility.

Part 2: Next Step in the Accounting Cycle

Jenna, the junior accountant, has listed various expenses incurred in the last quarter, including inventory purchases, marketing, payroll, interest, office rent, technology, and office supplies. She is unsure of the subsequent steps in the accounting cycle. The appropriate next step is to analyze these transactions to ensure proper classification within the chart of accounts, followed by recording them in journal entries, posting to ledger accounts, and preparing trial balances.

Specifically, Jenna should verify whether each expense aligns with the company’s expense categories. For example, inventory purchases should be recorded as asset increases (inventory account) rather than direct expenses unless they are cost of goods sold. Similarly, marketing expenses and payroll should be classified under appropriate expense accounts. After accurately categorizing these transactions, the next step would be to record journal entries for each, ensuring that debits and credits balance — a fundamental principle of double-entry accounting. Once entries are posted, preparing an adjusted trial balance will help identify discrepancies and set the stage for financial statement preparation. This process ensures precise financial data that reflect the company's true financial position and performance.

Therefore, Jenna’s best next move is to proceed with journalizing the grouped transactions, checking for accuracy and proper classification. This step is critical before compiling financial statements, as it maintains data integrity and assures reliable reporting.

Part 3: Choosing the Correct Financial Statement

A potential investor requires information about SunsTruck’s current debt obligations. The financial statements under consideration are the income statement, balance sheet, and cash flow statement. To determine which statement provides the necessary debt data, it is essential to understand where liabilities and current debt levels are depicted.

The balance sheet (also known as the statement of financial position) is the appropriate report, as it provides a snapshot of the company's assets, liabilities, and shareholder’s equity as of a specific date. It explicitly lists current liabilities such as accounts payable, and long-term liabilities like loans and bonds. In contrast, the income statement shows revenues, expenses, and net income, which do not directly reflect debt obligations. The cash flow statement details cash inflows and outflows categorized by operating, investing, and financing activities, and includes financing cash flows that relate to debt transactions but does not explicitly list total debt levels.

Therefore, the balance sheet is the most relevant document for a potential investor seeking information on SunsTruck’s current debt. It provides a clear, consolidated view of all outstanding liabilities, including Short-term and Long-term debt balances. Informing junior accountants that debt amounts are reported under liabilities on the balance sheet ensures transparency and accurate financial analysis.

Part 4: Investment Decision Based on Financial Analysis

If I were a financier evaluating SunsTruck for investment, my decision would hinge on several factors, including the company’s profitability, liquidity, debt levels, and growth prospects. The financial statements indicate a healthy revenue stream of approximately $789,590, with a net income of $102,255, demonstrating profitability. The balance sheet shows total liabilities of $479,500, with manageable current liabilities in relation to current assets ($145,500), suggesting sufficient liquidity.

Moreover, the cash flow statement indicates positive cash flows from operating activities ($99,140), which is promising for maintaining day-to-day operations and servicing debt without additional external funding. However, the high total liabilities relative to shareholders’ equity ($134,000) warrants careful analysis to ensure sustainable leverage. The company's strategic decision to expand indicates growth potential, but it also increases financial risk.

Given these factors, I would lean toward investing if SunsTruck demonstrates a clear strategy for managing increased debt, maintains strong operating cash flows, and shows potential for profit margin expansion. The company’s consistent profitability and positive cash flow suggest it can meet its obligations and grow sustainably. Should these conditions persist, the risk profile is acceptable, and investment could be justified to realize future growth and returns.

In conclusion, while the company exhibits promising financial health, thorough due diligence on debt management and growth strategies would be essential before making an investment commitment. With prudent financial oversight, SunsTruck appears to be a viable candidate for investment.

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