Question

Camden Biotechnology began operations in September 2016. The following selected transactions relate to liabilities of the company for September 2016 through March 2017. Camden’s fiscal year ends on December 31. Its financial statements are issued in April.

2016

a.	On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $29,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees.
b.	On October 1, borrowed $26 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.
c.	Received $3,900 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 $4,410,000. 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.

2017

f.	In February, issued $25 million of 10-year bonds at face value and paid the bank loan on the March 1 due date.
g.	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 2016 and 2017 transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) 1 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $29,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees. 2 On October 1, borrowed $26 million cash 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 $3,900 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 $4,410,000. The state sales tax rate is 3% and the local sales tax rate is 3%. 5 Recorded the adjusting entry for accrued interest. 6 In February, issued $25.0 million of 10-year bonds. 7 Record the payment of the bank loan due on March 1. 8 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. Prepare the current and long-term liability sections of the December 31, 2016, balance sheet. Trade accounts payable on that date were $324,000. Balance Sheet (partial) At December 31, 2016 Current liabilities: Total current liabilities $0 Long-term liabilities:

Answer 1

Journal Entries for 2016 and 2017 transactions

Date	Particulars	Dr. Amount	Cr. Amount
05.09.2016	No Journal Entry Required
01.10.2016	Cash	$26,000,000
	Notes Payable		$26,000,000
	(To record five month bank loan)
31.12.2016	Cash	$3,900
	Refundable Deposit		$3,900
	(To record receipt of refundable deposit)
31.12.2016	Account Receivable	$4,674,600
	Sales Revnue		$4,410,000
	State Sales Tax @ 3%		$132,300
	Local Sales Tax @ 3%		$132,300
	(To recoed sales on account)
31.12.2016	Interest Expense	$598,000
	Interest Payable		$598,000
	$26000000 * 9% * (92 days in Oct-Dec / 360 days in year)
	(To record accrued interest on note at year end)
28.02.2017	Cash	$25,000,000
	Bonds Payable		$25,000,000
	(To record 10 year bonds)
01.03.2017	Notes Payable	$26,000,000
	Interest Payable	$598,000
	Interest Expense	$383,500
	$26000000 * 9% * (59 days in Oct-Dec / 360 days in year)
	Cash		$26,981,500
	(To record principal and interest paid on bank loan)
31.03.2017	Refundable Deposit	$1,950
	Cash		$1,950
	(To record return of 50% of refundable deposit)

Current and Long-term Liability Sections of the Balance Sheet as at 31.12.2016

Balance Sheet (Partial)
As At December 31, 2016
Particulars	Amount
Current Liabilities:
Notes Payable	$26,000,000
Refundable Deposit	$3,900
Interest Payable	$598,000
Trade Accounts Payable	$324,000
Total Current Liabilities	$26,925,900
Long-term Liabilities	$0