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 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $19,000,000 at the bank’s prime rate (12.5% at the time). The company will pay no commitment fees. On October 1, borrowed $16 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. Received $3,500 of refundable deposits in December for reusable containers used to transport and store chemical-based products. For the September–December period, sales on account totaled $4,140,000. 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.) Recorded the adjusting entry for accrued interest. 2019 In February, issued $12.4 million of 10-year bonds at face value and paid the bank loan on the March 1 due date. 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 $347,000.

Answer 1

						Calculation of the rate of sales tax
						Total Sales Tax Rate
						Sales Tax Rate (State)+Sales tax rate(Local)
						3%+3%
				$3,500		6%
						Sales Tax
						Accounts Receivable *Rate of Tax
						$4140000*6%
						$248,400
						Computation of Accounts Receivable
						Sales Revenue+Sales Tax Payable
						$4140000+$248400
						$4,388,400
						Computation of Accrued Interest
						Interest Accrued
						Notes payable *Rate of Interest*Number of Months/12
						$16000000*12%*3/12
						$480,000
						Computation of interest Expense
						Interest Expense
						Notes Payable *Rate of Interest *Number of Months/12
						$16000000*12%*2/12
						$320,000
						Computation of cash to be piad
						Interest Expense +Interest Payable+Notes Payable
						$320000+$480000+$16000000
						$16,800,000
						Computation of the amount of refundable deposits paid
						Refundable Deposits paid
						Total Refundable Deposits*1/2
						$3500/2
						$1,750
1 No Journal Entry will be passed for the negotiation of short term LOC. Journal Entry 2 Date Account Title Dr Amount Cr Amount 1st Oct 2018 Cash $16,000,000 To Note Payable $16,000,000 to record the issunace of Calculation of the rate of sales tax promissory note Total Sales Tax Rate Sales Tax Rate (State)+Sales tax rate(Local) 3 Cash $3,500 3%+3% To Refundable Deposits $3,500 6% to record the receipt of Sales Tax refundable deposits Accounts Receivable *Rate of Tax $4140000*6% 4 Accounts Receivable $4,388,400 $248,400 To Sales Revenue $4,140,000 To Sales Tax Payable $248,400 Computation of Accounts Receivable to record the sales and sales Sales Revenue+Sales Tax Payable tax for sep-dec $4140000+$248400 $4,388,400 5 Interest Expense $480,000 To Interest Payable $480,000 Computation of Accrued Interest to record the interest Interest Accrued Accrued Notes payable *Rate of Interest*Number of Months/12 $16000000*12%*3/12 6 Cash $12,400,000 $480,000 To Bonds Payable $12,400,000 to record the issue of bonds 7 1st March 2019 Interest Expense $320,000 Computation of interest Expense Interest Payable $480,000 Interest Expense Notes Payable $16,000,000 Notes Payable *Rate of Interest *Number of Months/12 To cash $16,800,000 $16000000*12%*2/12 to record the repayment $320,000 of bank loan along with Computation of cash to be piad interest Interest Expense +Interest Payable+Notes Payable $320000+$480000+$16000000 Refundable Deposits $1,750 $16,800,000 To Cash $1,750 To record the payment of Refundable Deposits Computation of the amount of refundable deposits paid Refundable Deposits paid Total Refundable Deposits*1/2 $3500/2 $1,750 2 Balance Sheet as at 31st Dec 2018 Liabilities Amount Long Term Liabilities ` Current Liabilities a Loan from Second Commercial Bank $16,000,000 c Security Deposits $3,500 d Sales Tax Payable $248,400 e Accrued Interest on loan payable $480,000 f Trade Accounts Payable $347,000 $17,078,900