ACT 311–Accounting Cycle Project CAM’s Coffee Shop

ACT 311 – Accounting Cycle Project
Due: Sunday, September 11th at 11:59pm
CAM’s Coffee Shop
CAM’s 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 CAM’s Coffee, Inc. on December 31,
2015.
Current Assets:
Cash
Inventory
Total Current Assets
Fixed Assets
Less: Accumulated
Depreciation
Net Fixed Assets
Total Assets

33,500
7,500
41,000
25,000
(5,000)
20,000
$61,000

Current Liabilities:
Accounts Payable

Stockholder’s Equity:
Common Stock
(15,000 shares outstanding)
Retained earnings
Total Liabilities and Equity

17,000

30,000
14,000
$61,000

In May 2016, 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 2016) 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, 2016. The terms of the loan required them to
pay 6% interest each July 1, beginning in 2017 and repay the entire loan on July 1, 2020.
The opening was scheduled for July 1st 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.

Carly compiled the following information about transactions that occurred during 2016:
a. Sales at the coffee shops totaled $207,000. All these sales were cash sales.
b. Sales related to the catering services totaled $68,000, of which they were still waiting to
collect $25,000.
c. CAM’s Coffee Shops took delivery of inventory valued at $118,500 for the year. All was
purchased on account.
d. CAM’s made payments to suppliers, related to inventory in part c, in the amount of
$107,000.
e. A one-year insurance policy to cover miscellaneous liabilities was purchased on September
1, 2016 for $3,000.
f. Employees earned $23,000, of which $21,000 had been paid.
g. On December 1st, they paid the next six months of rent.
h. General and Administrative expenses totaling $16,000 were paid in cash.
Other information:
i. Inventories on hand at December 31, 2016 for two coffee shops were valued at $2,400.
CAM’s 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.)
j. All depreciable items purchased during 2016 will be depreciated for half a year in 2016 (a
tax accounting convention that is allowed for financial accounting purposes).
k. 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.
l. 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.
m. At the end of December, they received a catering order for the Martin Luther King Jr.
Celebration in January 2017. The celebration calls for 1,000 boxed meals at $5 each.
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.
Requirements:
1. Record all necessary journal entries for CAM’s Coffee Shops for the year ended December 31,
2016 (including all adjusting and closing entries).
2. Post the journal entries to T-accounts.
3. Prepare the following financial statements in good form:
a. A multiple-step Income Statement for the year ended on December 31, 2016. Assume a
35% tax rate.
b. Balance sheet at December 31, 2016
Notes:
1. Excel must be used for this project. Link through your journal entries, T-accounts, and
financial statements using formulas similar to the practice cycle problem. This will allow you
to easily make changes.
2. You may work in pairs or individually. Please turn in one assignment per pair.
3. If you are not sure what “in good form” means, refer to examples in your textbook (pages 76
and 77).
4. The assignment is to be uploaded in Canvas by Sunday, September 11th at 11:59pm. Any
assignments not received at that time will be considered late and points will be deducted
accordingly.

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