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:
1. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $16,000,000 at the bank's prime rate (9.5% at the time). The company will pay no commitment fees.
2. On October 1, borrowed $13 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 $3,400 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 $4,840,000. 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.
2022:
In March, paid the entire amount of the note on its March 1 due date, using proceeds from a February issuance of $9.4 million of 10-year bonds at face value, along with other available cash.
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.
2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet. Trade accounts payable on that date were $327,000.

Answer 1

Answer:

1.- no entry required as no transaction ocurred. the part just agree on performing futures transactions.

2.-

Cash           13,000,000 debit

   Notes Payables     13,000,000 credit

3.-

Accounts Payables   3,400  debit

              Cash                         3,400 credit

4.-

Accounts Receivables 4,840,000 debit

        Sales revenue                  4,549,600 credit

        State Sales tax                     145,200 credit

        Local sales tax                     145,200  credit

5.-

interest expense     308,750 debit

          interest payable          308,750 credit

principal x rate x time (from October 1st to December 31th)

13,000,000 x 9.5% x 3/12 = 308,750

Explanation:

2.- the company post the cash received and the note signed.

3.- the company take te refund thus, It decrease part of their account payable as it was liable if something happened with the conteiners.

4.- the sales taxes are 3% on each one.

then the sales revenus would be the diffeerence in the total sales and the sales taxes.

5.- we have to calccalte the accrud interest considering rate and time must be in the same metric (years) so we express time as 3 months over a 12 months year