In its first year, Sam’s Subway Emporium engaged in the following transactions.

Indicate the effects of each transaction on Sam’s balance sheet by using the balance sheet equation. Total your worksheet at the end of the first year and prepare a simple balance sheet.

1. Sam’s was formed with a cash investment of $50,000 in exchange for common stock.

2. Sam’s purchased a lunch cart for $10,000 cash.

3. Sam’s ordered food and other supplies at a cost of $13,500, not yet received.

4. Sam’s received the food and supplies, but intended to pay later.

5. Sam’s felt quite generous and gave its employees an advance on their first week’s wages of $2,500.

6. Sam’s then got a bit nervous about whether it could pay its employees and suppliers in subsequent months, so a bank loan of $100,000 was acquired at an annual interest rate of 10%.

7. Sam’s failed to pay for its first month’s food and other supplies; the supplier billed Sam’s a 20% late fee.

8. Sam’s paid the employee’s salaries of $67,500 during the year and also recognized the wages that were paid in advance as expenses. 9. Assume that an entire year has passed and Sam’s has made no payments on the loan or the supplier’s bill. The late fee is assessed quarterly (four times each year) if the account is not paid. Accrue interest on the loan and use an interest payable account for both the late fees and the interest on the loan. 10. On the first day of the next year, will Sam’s be able to repay the loan? If so,

show the effects of the loan repayment. P-968