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In its first year of operations, Cloudbox has credit sales of $236,000. Its year-end balance in accounts receivable is $13,600, and the company estimates that $3,300 of its accounts receivable is uncollectible. Prepare the year-end adjusting entry to estimate bad debts expense. Prepare the current assets section of Cloudbox’s classified balance sheet assuming Inventory is $31,000, Cash is $23,000, and Prepaid Rent is $3,900. Note: The company reports Accounts receivable, net on the balance sheet.

User Sambeth
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Final answer:

Cloudbox needs to create a journal entry to record the bad debts expense by debiting Bad Debts Expense for $3,300 and crediting Allowance for Doubtful Accounts for $3,300. On the balance sheet, the net accounts receivable after the allowance is $10,300. The total current assets, including Cash, Inventory, and Prepaid Rent, amount to $68,200.

Step-by-step explanation:

In the first year of operations for Cloudbox, which had credit sales of $236,000, we need to prepare the year-end adjusting entry for bad debts expense. The company has an accounts receivable balance of $13,600 and estimates that $3,300 is uncollectible. We can record the bad debts expense with the following journal entry:

  • Debit Bad Debts Expense for $3,300
  • Credit Allowance for Doubtful Accounts for $3,300

This entry increases the bad debts expense on the income statement and also sets up an allowance for doubtful accounts as a contra account to accounts receivable on the balance sheet.

Next, we prepare the current assets section of the classified balance sheet. Here are the amounts provided:

  • Accounts Receivable: $13,600
  • Less: Allowance for Doubtful Accounts: $3,300
  • Inventory: $31,000
  • Cash: $23,000
  • Prepaid Rent: $3,900

The accounts receivable, net, would be calculated as $13,600 - $3,300 = $10,300.

Considering the given information, the current assets section would be displayed as:

  • Cash: $23,000
  • Accounts Receivable, net: $10,300
  • Inventory: $31,000
  • Prepaid Rent: $3,900

Total Current Assets: $68,200

User Jkozera
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