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 $25,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees.
2. On October 1, borrowed $22 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 $4,200 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 $4,630,000. 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 $20 million of 10-year bonds at face value and paid the bank loan on the March 1 due date.
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.
2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet. Trade accounts payable on that date were $302,000.

Answer 1

Part 1

Transaction	General Journal	Debit	Credit
2018
a	no journal entry required	0
	No journal entry required		0
b	cash	22000000
	Notes Payable		22000000
C	cash	4200
	Liability - refundable deposits		4200
D	accounts receivable	4907800
	Sales revenue		4630000
	Sales taxes payable (4630000*6%)		277800
E	interest expense (22000000*9%*3/12)	495000
	Interest payable		495000
2019
F	cash	20000000
	Bonds payable		20000000
	Notes Payable	22000000
	Interest expense (22000000*9%*2/12)	330000
	Interest payable	495000
	Cash		22825000
G	liability - refundable deposits	2100
	Cash (4200/2)		2100

Part 2

Balance sheet

At December 31 2018

Current liabilities :
Sales taxes payable	277800
Accrued interest payable	495000
Current Portion of bank loan (22000000-20000000)	2000000
Liability - refundable deposits	4200
Accounts payable	302000
Total current liabilities	3074800
Long-term liabilities:
Bank loan to be refinanced	20000000