Question

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 $16,000,000 at the bank's prime rate (9.5% at the time). The company will pay no commitment fees. b. On October 1, borrowed $13 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 9% was payable at maturity Management planned to issue 10-year bonds in February to repay the note. c. Received $3,400 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 $4,840,000. 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 $9.4 million of 10 year bonds at face value, along with other available cash 9. 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:

Answer 1

1.

Transaction	General Journal	Debit	Credit
a.	No journal entry required
b.	Cash	13000000
	Notes payable		13000000
	(To record borrowing against note)
c.	Cash	3400
	Liability for refundable deposit		3400
	(To record deposits collected)
d.	Accounts receivable	5130400
	Sales revenue		4840000
	Sales tax payable ($4840000 x 6%)		290400
	(To record sales on account)
e.	Interest expense ($13000000 x 9% x 3/12)	292500
	Interest payable		292500
	(To record accrued interest on note)
f-1.	Cash	9400000
	Bonds payable		9400000
	(To record issue of bonds)
f-2.	Notes payable	13000000
	Interest payable	292500
	Interest expense ($13000000 x 9% x 2/12)	195000
	Cash		13487500
	(To record repayment of bank loan)
g.	Liability for refundable deposit	1700
	Cash ($3400 x 1/2)		1700
	(To record deposits refunded)

2.

Camden Biotechnology
Balance Sheet (Partial)
At December 31, 2021
Current liabilities:
Accounts payable	327000
Current portion of notes payable*	3600000
Interest payable	292500
Sales tax payable	290400
Liability for refundable deposit	3400
Total current liabilities	4513300
Long-term liabilities:
Notes payable to be refinanced on a long-term basis	9400000

*Current portion of notes payable = $13000000 - $9400000 = $3600000