1 answer

Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabil- ities of...

Question:

Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabil- ities of the c
758 SECTION 3 Liabilities and Shareholders Equity P 13-3 Current- noncurrent classification of debt • LO13-1, LO13-4 The bal
Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabil- ities of the company for September 2021 through March 2022. Camden's fiscal year ends on December 31. Its financial statements are issued in April. P13-2 Warious transactions involving liabilities LO13-2 through LO13-4 2021 a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank's prime rate (10.5% at the time). The company will pay no commit- ment fees. b. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. c. Received $2,600 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 $4,100,000. 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 I due date, using proceeds from a February issu.. ance of $10 million of 10-year bonds at face value, along with other available cash. 8. 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 aug. 2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet. Trade accounts payable on that date were $252,000.
758 SECTION 3 Liabilities and Shareholders' Equity P 13-3 Current- noncurrent classification of debt • LO13-1, LO13-4 The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below: a. 11% bonds with a face amount of $40 million were issued for S40 million on October 31, 2012. The bonds mature on October 31, 2032. Bondholders have the option of calling (demanding payment on the bonds on October 31, 2022, at a redemption price of $40 million. Market conditions are such that the call is not expected to be exercised. b. Management intended to refinance $6 million of its 10% notes that mature in May 2022. In early March, prior to the actual issuance of the 2021 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $5 million any time during 2022. Any borrowings will mature two years from the date of borrowing. c. Noncallable 12% bonds with a face amount of $20 million were issued for $20 million on September 30, 2002. The bonds mature on September 30, 2022. Sufficient cash is expected to be available to retire the bonds at maturity. d. A $12 million 9% bank loan is payable on October 31, 2027. The bank has the right to demand payment after any fiscal year end in which Nevada Harvester's ratio of current assets to current liabilities falls below a contractual minimum of 1.7 to 1 and remains so for six months. That ratio was 1.45 on December 31, 2021, due primarily to an intentional temporary decline in inventory levels. Normal inventory levels will be reestab lished during the first quarter of 2022. Required: 1. Determine the amount, for each item a through d, that can be reported as a current liability and as a noncur- rent liability. Explain the reasoning behind your classifications. 2. Prepare the liability section of a classified balance sheet and any necessary note disclosure for Nevada Har vester at December 31, 2021. Accounts payable and accruals are $22 million.

Answers

Solution:

1)

#

Partculars

Debit

Credit

2021

a

No journal entry required

0

No journal entry required

b

Cash

12,000,000

Notes payable

12,000,000

c

Cash

2,600

Liability - refundable deposits

2,600

d

Accounts receivable

4,346,000

Sales revenue

4,100,000

Sales taxes payable [(3% + 3%) * 4,100,000]

246,000

e

Interest expense (10% * $12,000,000 * 3/12)

300,000

Interest payable

300,000

2022

f

Cash

10,000,000

Bonds payable

10,000,000

Notes payable

12,000,000

Interest expense (10% * 12,000,000 * 2/12)

200,000

Interest payable

300,000

Cash

12,500,000

g

Liability - refundable deposits (1/2 * 2,600)

1,300

Cash

1,300

2)

Current liabilities

Sales taxes payable

246,000

Accrued interest payable

300,000

Current portion of bank loan

2,000,000

Liability - refundable deposits

2,600

Accounts payable

252,000

Total current liabilities

2,800,600

Long-Term Liabilities:

Bank loan to be refinanced

10,000,000

.

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