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