Question

Saved Help av Grossman Products began operations in 2021. The following selected transactions occurred from September 2021 through March 2022. Grossman's fiscal year ends on December 31. 2021: (a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $9,700,000 at 10% interest. The company is not required to pay any commitment fees. (b.) On October 1, Grossman borrowed $7,700,000 cash and issued a 5-month promissory note with 12% Interest payable at maturity. (c) Grossman received $2,700 of refundable deposits in December for reusable containers (d.) For the September through December period, sales totaled $4,700,000. The state sales tax rate is 4% and 70% of sales are subject to sales tax (e.) Grossman recorded accrued interest 2022: (1) Grossman paid the promissory note on the March 1 due date. (9.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months. Required: 1. Prepare the appropriate journal entries for the 2021 transactions 2. Prepare the liability section of the balance sheet at December 31, 2021, based on the data supplied 3. Prepare the appropriate journal entries for the events occurring in March of 2022

Answer 1

1.

Transaction	General Journal	Debit	Credit
a.	No journal entry required
b.	Cash	7700000
	Notes payable		7700000
	(To record borrowing against note)
c.	Cash	2700
	Liability for refundable deposits		2700
	(To record refundable deposits received)
d.	Cash/Accounts receivable	4831600
	Sales tax payable (70% x $4700000 x 4%)		131600
	Sales revenue		4700000
	(To record sales)
e.	Interest expense ($7700000 x 12% x 3/12)	231000
	Interest payable		231000
	(To record interest accrued on note)

2.

Balance Sheet (partial)
At December 31, 2021
Current liabilities:
Notes payable	7700000
Liability for refundable deposits	2700
Sales tax payable	131600
Interest payable	231000
Total current liabilities	8065300

3.

Transaction	General Journal	Debit	Credit
a.	Notes payable	7700000
	Interest payable	231000
	Interest expense ($7700000 x 12% x 2/12)	154000
	Cash		8085000
	(To record the payment of note)
b.	Liability for refundable deposits	1350
	Cash ($2700 x 1/2)		1350
	(To record repayment of refundable deposits)