Question: Aardvark Inc began 2014 with the following receivables related account balances

Aardvark, Inc., began 2014 with the following receivables-related account balances:
Accounts receivable $575,000
Allowance for uncollectibles 43,250

Aardvark’s transactions during 2014 include the following:
1. On April 1, 2014, Aardvark accepted an 8%, 12-month note from Smith Bros. in settlement of a $17,775 past due account.
2. Aardvark finally ceased all efforts to collect $23,200 from various customers and wrote off their accounts.
3. Total sales for the year (80% on credit) were $1,765,000. Cash receipts from customers as reported on Aardvark’s cash flow statement were $1,925,000.
4. Sales for 2014 as reported included $100,000 of merchandise that Jensen, Inc., ordered from Aardvark. Unfortunately, a shipping department error resulted in items valued at $150,000 being shipped to Jensen. Because Jensen believed that it could eventually use the unordered items, it agreed to keep them in exchange for a 10% reduction in their price to cover storage costs. Neither the sales nor the receivable for the extra $50,000 of merchandise were recorded.
5. On February 1, 2014, Aardvark borrowed $65,000 from Sun Bank and pledged receivables in that amount as collateral for the loan. Interest of 5% was deducted from the cash proceeds. In June, Aardvark repaid the loan.
6. Aardvark estimates uncollectible accounts using the sales revenue approach. In past years, the bad debt provision was estimated at 1% of gross sales revenue, but a weaker economy in 2014 led management to increase the estimate to 1.5% of gross sales revenue.
7. On July 1, 2014, Aardvark sold equipment to Zebra Company and received a $100,000 noninterest-bearing note receivable due in three years. The equipment normally sells for $79,383. Assume that the appropriate rate of interest for this transaction is 8%.

1. Prepare journal entries for each of the preceding events. Also prepare any needed entries to accrue interest on the notes at December 31, 2014.
2. Show Aardvark’s balance sheet presentation for accounts and notes receivable at December 31, 2014

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  • CreatedSeptember 10, 2014
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