CareerIn 19-Week Investment Banking Workshop

Accounting
Accounting Basics
James Peterson set up a business selling carpets and made the following transactions
in the period. Show how each of these transactions will affect assets, liabilities and
equity. Also, build the income statement and balance sheet. Prior to setting up the
business, there are zero assets, liabilities and equity. Use the templates below to
produce your answer.
Transaction
Recording of transaction
He invested 100,000 in the equity of the
new company
He rented a shop for 10,000 per year
He purchased 50,000 of carpet inventory
at the start of the year with cash
He took out a bank loan of 50,000 at the
beginning of the year
The bank charged interest at 5% per year
on the bank loan
He spent 12,000 on equipment for the
shop in cash
James paid utility bills of 5,000 in cash
James paid himself a salary of 50,000 in
cash
Assume no depreciation
The tax rate is 30% of profits before tax
Carpet Cavern: Income statement
Sales
Cost of goods sold
Gross profit
Selling, general and administrative
Operating profit
Interest expense
Profit before tax
Tax expense
Net income / profit after tax
Carpet Cavern: Balance sheet
Cash
Inventory

PP&E
Total assets
Debt
Common stock
Retained earnings
Total liabilities and equity
Income Statement
When would the following companies account for revenues and when do they receive
the cash from their customers?
Singapore Airlines
Wal-Mart
Intel
Use the following extract from Dillards 10-K to calculate normalized EBIT. Your boss
has told you that the line called Service Charges, Interest and Other Income is
non-core, not continuing and not controlled.
Net Sales
Service Charges, Interest and Other Income
Costs and Expenses
Cost of sales
Advertising, selling, administrative and general expenses
Depreciation and amortization
Rentals
Interest and debt expense
Asset impairment and store closing charges
Total costs and expenses
Income Before Income Taxes
Income Taxes
Net Income

7,560,191
147,802
7,707,993
5,014,021
2,041,481
301,864
47,538
105,570
61,734
7,572,208
135,785
14,300
121,485

Calculate the ETR and the normalized ETR for KenKey Ltd.
KenKey Ltd income statement
Revenues
Cost of goods sold
Gross profit
SG&A
Operating profit

143,492.9
92,857.1
50,635.7
42,778.6
7,857.1

Interest expense
Profit before tax
Tax expense
Net income / profit after tax

2,740.7
5,116.4
2,750.7
2,365.7

Your review of the footnotes finds that embedded in COGS is a non-recurring charge
of 42,988. You also know that the marginal tax rate is 32%.
Balance Sheet
Using the information from the balance sheets below, calculate the companys
working capital and operating working capital.
Balance sheet
Cash & cash equivalents
Marketable securities
Receivables
Inventories
Deferred income tax assets
Other
Total current assets
Net PP&E
Goodwill
Other non-current assets
Long term deferred income tax assets
Total assets
Accounts payable
Short term borrowings
Long term debt currently payable
Dividends payable
Deferred income tax liabilities
Total current liabilities
Long term borrowings
Post employment benefits
Other long term liabilities
Long term deferred tax liabilities
Total liabilities
Common stock
Additional paid in capital
Retained earnings
Treasury stock
Total shareholders equity
Total liabilities & equity

Year 1
2,020
48
3,064
1,480
711
360
7,683
5,292
616
872
505
14,968
3,398
371
1,701
136
129
5,735
660
3,671
790
95
10,951
966
523
4,485
(1,957)
4,017
14,968

Year 2
1,764
47
3,145
1,660
520
173
7,309
5,377
536
911
344
14,477
3,327
586
567
137
26
4,643
665
3,247
704
97
9,356
974
896
5,184
(1,933)
5,121
14,477

Year 1
WC
OWC

Year 2