Question
QUESTION 2 Paul Dirac begins operating his Anti-Matter Bar and Grill on 1/1/19 with an equity investment of $100,000. Dirac assumes that he will
QUESTION 2 Paul Dirac begins operating his Anti-Matter Bar and Grill on 1/1/19 with an equity investment of $100,000. Dirac assumes that he will earn $61,000 in cash revenues and incur cash operating expenses of 40.00% of revenues each year. The corporate tax rate is assumed to be 21.00%. Also on 1/1/19, Dirac 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 $42,500. The economic life of the Equipment is assumed to be 5.00 years with Non-Guaranteed Residual Value $7,225. The company uses straight line depreciation for financial reporting purposes and for tax purposes. Furthermore assume that Dirac knows that the lease company's cost of funds is 8.50%. Questions (ROUND ALL CALCULATIONS TO 4 DECIMAL PLACES) 1) Create an amortization table for this lease (be careful). 2) How should Dirac 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 Paul Dirac's Anti-Matter Bar and Grill for the next 5 years.
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