"Aardvark, Inc. began 2005 with the subsequent receivables related account balances:
Accounts receivable $575,000
Allowance for uncollectibles 43,250
Aardvark's transactions during 2005 include the subsequent:
1. On 1st April, 2005, Aardvark accepted an 8 percent, 12-month note from Smith Bros. in settlement of a past due account of $17,775.
2. Aardvark finally ceased all efforts to collect $23,200 from different customers and wrote off their accounts.
3. Total sales for the year (80 percent 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 2005 reported above included $100,000 of merchandise Jensen, Inc. ordered from Aardvark. unluckily, a shipping department error resulted in items valued at $150,000 being shipped and invoiced to Jensen. Because Jensen believed that they could finally use the unordered items, they agreed to keep them in exchange for a 10 percent reduction in their price to cover storage costs.
5. On 1st February, 2005, Aardvark borrowed $65,000 from Sun Bank and pledged receivables in that amount as collateral for the loan. Interest of 5 percent was deducted from the cash proceeds. In June, Aardvark repaid the loan.
6. Aardvark estimates uncollectible accounts using sales revenue approach. In past years, bad debt expense was evaluated at 1% of gross sales revenue, but a weaker economy in 2005 leads management to increase the estimate to 1.5 percent of gross sales revenue.
7. On 1st July, 2005, Aardvark sold equipment to Zebra Company and received a $100,000 non-interest-bearing note receivable due in 3 years. The equipment usually sells for $79,383. Suppose the appropriate rate of interest for this transaction is 8 percent.
REQUIRED
1. Create journal entries for each of these events. Also create any needed entries to accrue interest on the notes at 31st December. 2005.
2. Show Aardvark's balance sheet presentation for accounts and notes receivable at 31st December, 2005.