Problem -
1. On April 1, 2005, Aardvark accepted an 8%, 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 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 2005 reported above included $100,000 of merchandise 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 they could eventually use the unordered items, they agreed to keep them in exchange for a 10% reduction in their price to cover storage costs.
5. On February 1, 2005, 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 2005 leads management to increase the estimate to 1.5% of gross sales revenue.
7. On July 1, 2005, Aardvark sold equipment to Zebra Company and received a $100,000 non-interest-bearing note receivable due in three years. The equipment normally sells for $79,383. Assume the appropriate rate of interest for this transaction is 8%.
REQUIRED
1. Prepare journal entries for each of these events. Also prepare any needed entries to accrue interest on the notes at December 31. 2005.
2. Show Aardvark's balance sheet presentation for accounts and notes receivable at December 31, 2005.