CAMs Coffee Shop is a young and hip venue that is always packed with CSU students who are taking breaks between classes. The following is the Balance Sheet of CAMs Coffee, Inc. on December 31, 2017.

In May 2018, the owners, Carly, Anthony, and Mayu, all graduates of CSU, decided to open a second venue closer to campus. They wanted to offer the same quality study space, late hours, and fair prices in their new location. Along with the new venue, they planned to start a catering business by offering sandwiches, soups, salads, and homemade baked goods to many student organizations and offices near campus. This service is expected to be in high demand to cater to the needs of the growing campus population.

In order to add a new store and expanded services, the owners needed to raise capital. They decided they would each contribute additional money and services to maintain equal ownership. On June 1, Anthony and Mayu each contributed $20,000 in exchange for 10,000 shares of stock. Also on June 1, Carly contributed $10,000 and provided accounting services in exchange for 10,000 shares.

On June 1, they signed a renewable 24-month lease for a new store. The lease required an up-front payment for the first six months (covering June through November 2018) at the rate of $3,000 per month, plus an additional $10,000 damage deposit that was non-refundable if the lease was cancelled.

For additional capital, they approached a local credit union for a small business loan. They were successful in obtaining a loan of $ 50,000 on July 1, 2018. The terms of the loan required them to pay 6% interest each July 1, beginning in 2019 and repay the entire loan on July 1, 2022.

The opening was scheduled for July 1 ^st and the month of June was used to prepare the facility and purchase merchandise and supplies. The prior tenant had been a frozen yogurt shop, so extensive paint and remodeling was necessary in order to create the hip atmosphere they desired. The cost of remodeling the interior space totaled $50,000 (aka leasehold improvements) and the cost of furnishings was an additional $35,000, including furnishings for the lounge and a point of sale computer system. They expected the useful life of the leasehold improvements (i.e., remodeling), furnishings and equipment to be 10 years.

After the first month of business, both stores were doing very well. They realized that their decision to start an additional venue was a smart one. As the year progressed, business remained strong and they were able to hire managers and a full staff to operate one of the stores independently. Since the year was coming to an end, Carly, Anthony, and Mayu decided that they needed to prepare some financial statements for themselves and the bank to show how well the business was doing.

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Carly compiled the following information to help you in telling their 2018 story.

TRANSACTIONS DURING 2018:

1. Sales at the coffee shops totaled $207,000. All these sales were cash sales.
2. Sales related to the catering services totaled $68,000, of which they were still waiting to collect $25,000.
3. CAMs Coffee Shops took delivery of inventory valued at $118,500 for the year. All was purchased on account.
4. CAMs made payments to suppliers, related to inventory in part c, in the amount of $107,000.
5. A one-year insurance policy to cover miscellaneous liabilities was purchased on September 1, 2018 for $3,000.
6. Employees earned $23,000, of which $21,000 had been paid.
7. On December 1^st, they paid the next six months of rent.
8. General and Administrative expenses totaling $16,000 were paid in cash.

OTHER INFORMATION:

1. Inventories on hand at December 31, 2018 for two coffee shops were valued at $2,400. CAMs uses a periodic inventory system. (For our purposes, you can use the inventory account directly, rather than using a purchases account. This is similar to the cycle problem we did in class.)

10. All depreciable items purchased during 2018 will be depreciated for half a year in 2018 (a tax accounting convention that is allowed for financial accounting purposes).
11. The fixed assets at the beginning of the year relate to equipment and furnishings for the first coffee shop. These items are depreciated over a 10-year useful life.

12. Due to some economic concerns, one of the clients may be unable to pay several catering orders. Carly estimates that $3,000 of accounts receivable is not collectible.

1000. At the end of December, they received a catering order for the Martin Luther King Jr. Celebration in January 2019. The celebration calls for 1,000 boxed meals at $5 each.
1001. Since they are busy running the stores, the owners have contacted you to summarize and compile this information so they can evaluate whether their businesses have been profitable.

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REQUIREMENTS:

1. Record all necessary journal entries for CAMs Coffee Shops for the year ended December 31, 2018 (including all adjusting and closing entries).
2. Post the journal entries to T-accounts.
3. Prepare the following financial statements in good form:
   1. A multiple-step income statement for the year ended on December 31, 2018. Assume a 35% tax rate.
   2. A classified balance sheet at December 31, 2018

Current Liabilities: Accounts Payable 17,000 33,500 7,500 41,000 Current Assets: Cash Inventory Total Current Assets Fixed Assets Less: Accumulated Depreciation Net Fixed Assets Total Assets 25,000 (5,000) 30,000 Stockholder's Equity: Common Stock (15,000 shares outstanding) Retained earnings Total Liabilities and Equity 20,000 $61,000 14,000 $61,000