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 $10,000,000 at the bank's prime rate (12.5% at the time). The company will pay no commitment fees. b. On October 1, borrowed $7 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 12% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. c. Received $5,400 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 $4,980,000. 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 $2.8 million of 10- year bonds at face value, along with other available cash. g. 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: 1. Prepare the appropriate journal entries for items a-g. 2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet. Trade accounts payable on that date were $285,000.

Answer 1

1.

Transaction	General Journal	Debit	Credit
a.	No journal entry required
b.	Cash	7000000
	Notes payable		7000000
	(To record borrowing against note)
c.	Cash	5400
	Liability for refundable deposit		5400
	(To record deposits collected)
d.	Accounts receivable	5278800
	Sales revenue		4980000
	Sales tax payable ($4980000 x 6%)		298800
	(To record sales on account)
e.	Interest expense ($7000000 x 12% x 3/12)	210000
	Interest payable		210000
	(To record accrued interest on note)
f-1.	Cash	2800000
	Bonds payable		2800000
	(To record issue of bonds)
f-2.	Notes payable	7000000
	Interest payable	210000
	Interest expense ($7000000 x 12% x 2/12)	140000
	Cash		7350000
	(To record repayment of bank loan)
g.	Liability for refundable deposit	2700
	Cash ($5400 x 1/2)		2700
	(To record deposits refunded)

2.

Camden Biotechnology
Balance Sheet (Partial)
At December 31, 2021
Current liabilities:
Accounts payable	285000
Current portion of notes payable	4200000
Interest payable	210000
Sales tax payable	298800
Liability for refundable deposit	5400
Total current liabilities	4999200
Long-term liabilities:
Notes payable to be refinanced on a long-term basis	2800000