Question

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 $9,100,000 at 10% interest. The company is not required to pay any commitment fees. (b.) On October 1, Grossman borrowed $7,100,000 cash and issued a 5-month promissory note with 12% interest payable at maturity. (c.) Grossman received $2,100 of refundable deposits in December for reusable containers. (d.) For the September through December period, sales totaled $4,100,000. The state sales tax rate is 4% and 70% of sales are subject to sales tax. (e.) Grossman recorded accrued interest. 2022: (f.) Grossman paid the promissory note on the March 1 due date. (g.) 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

Answer:

1. Prepare the appropriate journal entries for the 2021 transactions.

(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $9,100,000 at 10% interest. The company is not required to pay any commitment fees.

Sep 5 No Entry req here

(b.) On October 1, Grossman borrowed $7,100,000 cash and issued a 5-month promissory note with 12% interest payable at maturity.

Oct 1 Cash Dr 7,100,000

Note Payable Cr 7,100,000

(c.) Grossman received $2,100 of refundable deposits in December for reusable containers.

Oct1 Cash Dr 2,100

Refundable Deposit Cr 2,100

(d.) For the September through December period, sales totaled $4,100,000. The state sales tax rate is 4% and 70% of sales are subject to sales tax.

Dec 31 States Sales Tax Dr $114,800

State Sales Tax payable Cr 114,800

(70%*4,100,000*4% = $114,800)

(e.) Grossman recorded accrued interest.

Dec 31 Interest exp Dr $213,000

Interest Payable Cr $213,000

(Int on Note Payable 12%*7,100,000*(3/12) = $213,000)

2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied.

Liability :

Note Payable $7,100,000

Refundable deposit $2,100

State Sales Tax payable 114,800

Interest Payable $213,000

3. Prepare the appropriate journal entries for the 2012 transactions.:

(f.) Grossman paid the promissory note on the March 1 due date.

Mar 1 Int Exp Dr $142,000

Int Paybale Dr 213,000

Cash Cr 355,000

(Int on Note Payable 12%*7,100,000*(2/12) = $142,000)

(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.

Mar 31 Refundable Depoist Dr 1050

Cash Cr 1050