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On May 1, 2022, Bruce Zoolander entered into a lease agreement to operate a retail store that was owned by Blue Bull Energy Company (BBE).

On May 1, 2022, Bruce Zoolander entered into a lease agreement to operate a retail store that was owned by Blue Bull Energy Company (“BBE”). The store sells consumer energy products such as branded drinks, supplements, energy bars and related branded merchandise. Bruce had $50,000 to invest that he had saved up from his job as a courier and from his semi-monthly $2500 salary from this position.

The regional manager of BBE told Bruce that the space would be ready by June 1 and that it cost a total of $250,000, with $50,000 for the land and $200,000 for the building. The building would last for 40 years, and the manager told Bruce that within a year the goodwill of the business would be worth at least $50,000.

The lease agreement was for a total of $1,500 per month re nt (and this included insurance, property taxes and utilities). In addition, an 3% royalty on sales was to be paid to BBE. All inventory was required to be purchased from BBE. His lease on the building was for 10 years.

On May 1, Bruce incorporated Bruce's Beautiful Blue Bull Energy Ltd. to operate this business. He paid

$2500 to incorporate the company (after loaning the company S40,000). He also paid S15,000forthe initial inventory from BBE. Bruce spent $20,000 on fixtures within the building.

Bruce quit his courier job on May 31 and began operating the business on June 1. He spent about 50 hours per week in this business and he hired 2 employees. The 6 months cash receipts and payments from operations were as follows (note that all his sales were for cash and he paid any expenses right away). Bruce decided that he would take a salary of $20002 times per month from the business. His accountant told him that the corporate tax rate is 11% and taxes would be due by March 31, 2023.

Sales of product

150,000

Payment to employees

20,000

Advertising

15,000

Insurance (6 months)

2,000

Withdrawals

20,000

Inventory purchases

50,000

Repairs

4,000

Office expenses

2,000

At the end of December, he counted the inventory and it was $20,000(at cost).

Questions:

Prepare an income statement, balance sheet, and statement of cash flows

Was this a good investment for Bruce? Explain.

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