Question

2

Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden's fiscal year ends on December 31. Its financial statements are issued in April. 2018 a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $33,000,000 at the bank's prime rate (15.5% at the time). The company will pay no commitment fees. b. On October 1, borrowed $30 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 15% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. c. Received $3,300 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 $5,020,000. 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.

Answer 1

S.no	General Journal	Debit	Credit
a	NO entry
b	Cash	30,000,000
	Note Payable		30,000,000
c	Cash	3,300
	Liability for refundable deposits		3,300
d	Accounts receivable	5,321,200
	Sales Revenue		5,020,000
	Sales tax payable [(3% + 3%) * 5,020,000]		301,200
e	Interest expense (15%*30,000,000*3/12)	1,125,000
	Interest payable		1,125,000
f	Cash	28,000,000
	Bonds payable		28,000,000
	Notes payable	30,000,000
	Interest payable	1,125,000
	Interest expense (15% x 30,000,000 x 2/12)	750,000
	Cash		31,875,000
g	Liability for refundable deposits	1,650
	Cash		1,650
	1/2 *3300
	Current Liabilities
	Accounts payable	321,000
	Current portion of notes payable	2,000,000
	Sales tax payable	301,200
	Interest payable	1,125,000
	Liability for refundable deposits	3,300
	Total current liabilities	3,750,500
	Long-term Liabilities
	Note payable to be refinances on long-term basis	28,000,000