Question

Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabil- ities of the company for September 2021 through March 2022. Camden's fiscal year ends on December 31. Its financial statements are issued in April. P13-2 Warious transactions involving liabilities LO13-2 through LO13-4 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 commit- ment 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 I due date, using proceeds from a February issu.. ance of $10 million of 10-year bonds at face value, along with other available cash. 8. 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 aug. 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.

Answer 1

Solution:

1)

#	Partculars	Debit	Credit
2021
a	No journal entry required	0
	No journal entry required
b	Cash	12,000,000
	Notes payable		12,000,000
c	Cash	2,600
	Liability - refundable deposits		2,600
d	Accounts receivable	4,346,000
	Sales revenue		4,100,000
	Sales taxes payable [(3% + 3%) * 4,100,000]		246,000
e	Interest expense (10% * $12,000,000 * 3/12)	300,000
	Interest payable		300,000
2022
f	Cash	10,000,000
	Bonds payable		10,000,000
	Notes payable	12,000,000
	Interest expense (10% * 12,000,000 * 2/12)	200,000
	Interest payable	300,000
	Cash		12,500,000
g	Liability - refundable deposits (1/2 * 2,600)	1,300
	Cash		1,300

2)

Current liabilities
Sales taxes payable	246,000
Accrued interest payable	300,000
Current portion of bank loan	2,000,000
Liability - refundable deposits	2,600
Accounts payable	252,000
Total current liabilities	2,800,600
Long-Term Liabilities:
Bank loan to be refinanced	10,000,000