Aardvark, Ic., began 20X1 with the following receivables-related account balances: Accounts receivable $575,000 43,250 Allowance for credit losses Aardvark's transactions during 20X1 include the following: a. On April 1, 20X1, Aardvark accepted an 8%, 12-month note from Smith Bros. in settlement of a $17,775 past due account. b. Aardvark finally ceased all efforts to collect $23,200 from various customers and wrote off their accounts. c. 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. d. Sales for 20X1 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. e. On February 1, 20X1, 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. f. 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 20X1 led management to increase the estimate to 1.5% of gross sales revenue. g. On July 1, 20X1, 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, 20X1. 2. Show Aardvark's balance sheet presentation for accounts and notes receivable at December 31, 20X1.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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