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Camden Biotechnology and Manufacturing Equitable

Price: $7.98


P13-2 Camden Biotechnology began operations in September 2013. The following selected
transactions relate to liabilities of the company for September 2011 through March 2014.
Camden’s fiscal year ends on December 31. Its financial statements are issued in April.
2013
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 commitment 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.
2014
f. In February, issued $10 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 these transactions.
2. Prepare the current and long-term liability sections of the December 31, 2013, balance sheet.
Trade accounts payable on that date were $252,000.

P13-4 The unadjusted trial balance of the Manufacturing Equitable at December 31, 2013, the
end of its fiscal year, included the following account balances. Manufacturing’s 2013
financial statements were issued on April 1, 2014.

Accounts receivable $ 92,500
Accounts payable 35,000
Bank notes payable 600,000
Mortgage note payable 1,200,000
Other information:

a. The bank notes, issued August 1, 2013, are due on July 31, 2014, and pay interest at a rate of
10%, payable at maturity.
b. The mortgage note is due on March 1, 2014. Interest at 9% has been paid up to December 31
(assume 9% is a realistic rate). Manufacturing intended at December 31, 2013, to refinance the
note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid
$250,000 in cash on the principal balance and refinanced the remaining $950,000.
c. Included in the accounts receivable balance at December 31, 2013, were two subsidiary
accounts that had been overpaid and had credit balances totaling $18,000. The accounts were
of two major customers who were expected to order more merchandise from Manufacturing
and apply the overpayments to those future purchases.
d. On November 1, 2013, Manufacturing rented a portion of its factory to a tenant for $30,000 per
year, payable in advance. The payment for the 12 months ended October 31, 2014, was
received as required and was credited to rent revenue.

Required:
1. Prepare any necessary adjusting journal entries at December 31, 2013, pertaining to each item

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