Question

Problems 8-1 Determining balance sheet presentation and preparing journal entries for various receivables transactions (LO 8-1, LO 8-4, LO 8-6)

Aardvark, Inc., began 2017 with the following receivables-related account balances:

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

Aardvark’s transactions during 2017 include the following:

On April 1, 2017, Aardvark accepted an 8%, 12-month note from Smith Bros. in settlement of a $17,775 past due account.

Aardvark finally ceased all efforts to collect $23,200 from various customers and wrote off their accounts.

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.

Sales for 2017 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.

On February 1, 2017, 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.

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 2017 led management to increase the estimate to 1.5% of gross sales revenue.

On July 1, 2017, 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, 2017.

Show the ending balance for the notes receivable, accounts receivable, and allowance for uncollectible accounts at December 31, 2017.

Prepapre Journal entry worksheet

1-Prepare the entry to accept the note in settlement of a past due account.

2-Prepare the entry to accrue interest on the note.

3-Prepare the entry to write-off customer accounts.

4-Prepare the entry for cash sales and credit sales.

5-Prepare the entry for collection of cash from credit sales to customers.

6-Prepare the entry for the additional shipment to Jensen, Inc. and the allowance for a reduced price.

7-Prepare the entry to borrow cash from Sun Bank.

8-Prepare the entry for the payment to settle the loan from Sun Bank.

8-Prepare the entry for the payment to settle the loan from Sun Bank.

9-Prepare the entry for the interest incurred on the loan from Sun Bank.

10-Prepare the entry for the sale of equipment for a non-interest bearing note.

11-Prepare the entry to accrue interest income on the note receivable.

Required 2

Complete this question by entering your answers in the tabs below.

Show the ending balance for the notes receivable, accounts receivable, and allowance for uncollectible accounts at December 31, 2017.

	Notes receivable Accounts receivable Allowance for uncollectibles

Answer 1

Refer the below images for the above asked question to write the journal entries for the above events and closing balance of notes receivable, accounts receivable and allowance for uncollectible.