Question

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

1. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $14,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees.
2. On October 1, borrowed $11 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.
3. Received $2,300 of refundable deposits in December for reusable containers used to transport and store chemical-based products.
4. For the September–December period, sales on account totaled $4,560,000. 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.)
5. Recorded the adjusting entry for accrued interest.

2019

6. In February, issued $9.5 million of 10-year bonds at face value and paid the bank loan on the March 1 due date. f-2 Record the payment of the bank loan due on March 1.
7. Half of the storage containers covered by refundable deposits were returned in March. The remaining containers are expected to be returned during the next six months.

Required:
1. Prepare the appropriate journal entries for 2018 and 2019 transactions.

Answer 1

Transaction	General Journal	Debit	Credit
a.	No journal entry required
b.	Cash	11000000
	Notes payable		11000000
	(To record borrowing against note)
c.	Cash	2300
	Liability for refundable deposit		2300
	(To record deposits collected)
d.	Accounts receivable	4833600
	Sales revenue		4560000
	Sales tax payable ($4560000 x 6%)		273600
	(To record sales on account)
e.	Interest expense ($11000000 x 9% x 3/12)	247500
	Interest payable		247500
	(To record accrued interest on note)
f-1.	Cash	9500000
	Bonds payable		9500000
	(To record issue of bonds)
f-2.	Notes payable	11000000
	Interest payable	247500
	Interest expense ($11000000 x 9% x 2/12)	165000
	Cash		11412500
	(To record repayment of bank loan)
g.	Liability for refundable deposit	1150
	Cash ($2300 x 1/2)		1150
	(To record deposits refunded)