John Keeley begins operating his Black Hole Bar and Grill on 1/1/19 with an equity investment of $100,000. Keeley assumes that he will earn $77,000 in cash revenues and incur cash operating expenses of 36.00% of revenues each year. The corporate tax rate is assumed to be 21.00%. Also on 1/1/19, Keeley leases Equipment to be used in his business. The term of the lease is for 5.00 years and is not cancellable. The present value of the Equipment is $37,500. The economic life of the Equipment is assumed to be 5.00 years with Guaranteed Residual Value $5,625; Expected Residual Value $1,125 and Actual Residual Value $5,625. The company uses straight line depreciation for financial reporting purposes and for tax purposes. Furthermore assume that Keeley knows that the lease company's cost of funds is 6.50%. 1) Create an amortization table for this lease (be careful). 2) How should Keeley Account for this lease (Perform Lease Classification Tests)? 3) Provide ALL journal entries and ALL T-accounts for this transaction over the next 5 years. 4) Based on the information in the problem, create pro-forma financial statements (I/S, SRE, B/S and SCF) for John Keeley's Black Hole Bar and Grill for the next 5 years.
John Keeley begins operating his Black Hole Bar and Grill on 1/1/19 with an equity investment of $100,000. Keeley assumes that he will earn $77,000 in cash revenues and incur cash operating expenses of 36.00% of revenues each year. The corporate tax rate is assumed to be 21.00%.
Also on 1/1/19, Keeley leases Equipment to be used in his business. The term of the lease is for 5.00 years and is not cancellable. The present value of the Equipment is $37,500. The economic life of the Equipment is assumed to be 5.00 years with Guaranteed Residual Value $5,625; Expected Residual Value $1,125 and Actual Residual Value $5,625. The company uses straight line
1) Create an amortization table for this lease (be careful).
2) How should Keeley Account for this lease (Perform Lease Classification Tests)?
3) Provide ALL
4) Based on the information in the problem, create pro-forma financial statements (I/S, SRE, B/S and SCF) for John Keeley's Black Hole Bar and Grill for the next 5 years.
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