Aardvark, Inc. began 2008 with the following receivables-related account balances:

Aardvark’s transactions during 2008 include the following:

1. On April 1, 2008, 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 2008 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 and invoiced 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.
5. On February 1, 2008, 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, bad debt expense was estimated at 1% of gross sales revenue, but a weaker economy in 2008 led management to increase the estimate to 1.5% of gross sales revenue.
7. On July 1, 2008, 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%.
Required:
1. Prepare journal entries for each of the preceding events. Also prepare any needed entries to accrue interest on the notes at December 31, 2008.
2. Show Aardvark’s balance sheet presentation for accounts and notes receivable at December 31, 2008.

Transcribed Image Text:

Accounts receivable $575,000 Allowance for uncollectibles 43,250