Grossman Products began operations in 2018 The following sel

Grossman Products began operations in 2018. The following selected transactions occurred from September 2018 through March 2019. Grossman\'s fiscal year ends on December 31.

2018:

(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,500,000 at 10% interest. The company is not required to pay any commitment fees.

(b.) On October 1, Grossman borrowed $8,500,000 cash and issued a 5-month promissory note with 8% interest payable at maturity.

(c.) Grossman received $3,500 of refundable deposits in December for reusable containers.

(d.) For the September through December period, sales totaled $5,500,000. The state sales tax rate is 4% and 80% of sales are subject to sales tax.

(e.) Grossman recorded accrued interest.

2019:

(f.) Grossman paid the promissory note on the March 1 due date.

(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.

Required:
1. Prepare the appropriate journal entries for the 2018 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2018, based on the data supplied.
3. Prepare the appropriate journal entries for the 2019 transactions.

Solution

Answer-1. Journal Entry S. No. Particulars Dr. Amt. Cr. Amt. a No Entry b Cash          8,500,000 Notes Payable          8,500,000 (record the issue of note) c Cash                  3,500 Liability - Refundable Deposits                  3,500 (record the deposits received against reusable containers) d. Accounts Receivable          5,676,000 $5,500,000 + $176,000 Sales Revenue          5,500,000 Sales Tax Payable              176,000 $5,500,000 X 4% x 80% (Record the sales fron sep to dec) e. Interest Expenses              170,000 $8,500,000 X 8% X 3/12 Interest Payable              170,000 (record the interest due on note) Answer 2. Balance Sheet (Partial) As on Dec 31, 2018 Liabilities Current Liabilities Liability - Refundable Deposits                  3,500 Sales Tax Payable              176,000 Interest Payable              170,000 Notes Payable          8,500,000 Total Current Liabilities          8,849,500 Answer 3. Journal Entry S. No. Particulars Dr. Amt. Cr. Amt. f. Interest Expenses              113,333 $8,500,000 X 8% X 2/12 Interest Payable              170,000 Notes Payable          8,500,000 Cash          8,783,333 (record the note paid) g. Liability - Refundable Deposits                  1,750 $3,500 / 2 Cash                  1,750 (Record the deposit returned for containers)