Case Study On Financing And The Accounting Cycle (Essay Sample)

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Financing
Option one is raising $150,000 in exchange for 30% of the company.
The option is good as there is no interest rate paid thus helps solve the company’s cash flow problem. On the other hand, 30% of the company is sold.
Option two is to secure a loan of $150,000 to be paid in 7 years at an interest rate of 10%
Interest = 10% of $150,000
=$15,000 annually
Principal payment = $150,000 / 7
=$ 21428.5
This option helps the company maintain its share but with the cashflows issues payment on the principal and interest might be an issue.
Option three is to secure a loan of $100,000 at an interest rate of 7% to be paid over 7 years and personally finance $50,000
Interest = 7% of $150,000
=$10,500 annually
Principal payment = $150,000 / 7
=$ 21428.5
The issue with this option is that the company is not in a state to personally finance the $50,000 in the first place as it also needs additional capital to stimulate demand. To add to that, the payment of interest will worsen the company’s cash flow issues.
From the options given, the best is option one as it does not take cash inflows from the company. The venture capital firm might also bring vital experience in the retail sector.
Accounting Cycle
Currently, the junior accountant has just summarized the information in the different journals. The next step is to post in the ledger then come up with unadjusted trial balance. If there are any mistakes, he should prepare the adjusting entries before preparing an adjusted trial balance. After that, he should prepare the financial statements, make closing entries and post closing trial balance. In finalizing, the next step is to analyze the information from the...