P 13-1 Bank loan; accrued interest ? LO2 Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2011, to provide working capital for year-end production. Blanton issued a four-month, 12% promissory note to L&T Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm?s fiscal period is the calendar year. Required: 1. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T Bank's receivable on October 1, 2011. 2. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2012. 3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is the bank's stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Blanton Plastics on October 1, 2011, the adjusting entry at December 31, and payment of the note at maturity. (b) What would be the effective interest rate? P 13-2 Various transactions involving liabilities ? LO2 through LO4 Camden Biotechnology began operations in September 2011. The following selected transactions relate to liabilities of the company for September 2011 through March 2012. Camden?s fiscal year ends on December 31. Its financial statements are issued in April. 2011 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. 2012 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, 2011, balance sheet. Trade accounts payable on that date were $252,000. p. 734 P 13-4 Various liabilities ? LO1 through LO4 The unadjusted trial balance of the Manufacturing Equitable at December 31, 2011, the end of its fiscal year, included the following account balances. Manufacturing?s 2011 financial statements were issued on April 1, 2012. 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, 2011, are due on July 31, 2012, and pay interest at a rate of 10%, payable at maturity. b. The mortgage note is due on March 1, 2012. Interest at 9% has been paid up to December 31 (assume 9% is a realistic rate). Manufacturing intended at December 31, 2011, 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, 2011, 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, 2011, 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, 2012, was received as required and was credited to rent revenue. Required: 1. Prepare any necessary adjusting journal entries at December 31, 2011, pertaining to each item of other information (a?d). 2. Prepare the current and long-term liability sections of the December 31, 2011, balance sheet.
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