Question

P 13-2 Various transactions involving liabilities O LO13–2 through LO13-4 Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabilities of the company for September 2021 through March 2022. Camden's fiscal year ends on December 31. Its financial statements are issued in April. 2021 a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank's prime rate (10.5% at the time). The company will pay no commitment fees. b. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. c. Received $2,600 of refundable deposits in December for reusable containers used to transport and store chemical-based products. d. For the September-December period, sales on account totaled $4,100,000. The state sales tax rate is 3% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.) e. Recorded the adjusting entry for accrued interest. 2022 f. In March, paid the entire amount of the note on its March 1 due date, using proceeds from a February issuance of $10 million of 10-year bonds at face value, along with other available cash. g. The storage containers covered by refundable deposits are expected to be returned during the first nine months of the year. Half of the containers were returned in March 2022. Required: 1. Prepare the appropriate journal entries for items a-g. 2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet. Trade accounts payable on that date were $252,000. Page 758

Answer 1

1. Prepare jourmal entries as follows: Transaction Account Title Debit Credit Year 2021 No entry required Cash Notes payable ь $12,000,000 $12,000,000 Cash $2,600 Refundable deposit liability S2,600 Accounts receivable $4,346,000 Sales revenue $4,100,000 Sales tax payable [S4,100,000 x (3% + 3%)] S246,000 Interest expense Interest payable ($12 million x 10% x 3/12) $300,000 $300,000 Cash $10,000,000 Bond payable $10,000,000

Note payable Interest payable Interest expense ($12 million x 10% x 2/12) $12,000,000 $300,000 $200,000 $12,500,000 Cash Refundable deposit liability ($2600/2) $1,300 S1,300 Cash 2. Prepare the extract of balance sheet as follows: Balances Sheet (Extract) Current Liabilities: Trade Accounts payable $252,000 Notes payable: Current portion ($12 million - $10 million) Sales tax payable Interest payable Refundable deposit liability Total Current Liabilities $2,000,000 $246,000 $300,000 $1,300 $2,799,300 Non-Current Liabilities: Note payable-Long term $10,000,000