In its first year of operations, Cloudbox has credit sales of $200,000. Its year-end balance in accounts receivable is $10,000, and the company estimates that $1,500 of its accounts receivable is uncollectible. a. Prepare the year-end adjusting entry to estimate bad debts expense.
b. Prepare the current assets section of Cloudboxâs classified balance sheet assuming Inventory is $22,000, Cash is $14,000, and Prepaid Rent is $3,000. Note: The company reports Accounts receivable, net on the balance sheet.

Cloudbox

a) Year-end adjusting entry to estimate bad debts expense:

Debit Bad Debts Expense $1,500

Credit Allowance for Uncollectible accounts $1,500

To record the uncollectible allowance.

b) Current Assets Section of the Balance Sheet:

Cash                                  $14,000

Accounts receivable (net)   8,500

Inventory                           22,000

Prepaid Rent                       3,000

Total current assets       $47,500

Explanation:

a) Data and Calculations:

Credit sales = $200,000

Accounts receivable ending balance = $10,000

Estimated uncollectible accounts = $1,500

Cash $14,000

Accounts receivable (net) $8,500 ($10,000 -$1,500)

Inventory $22,000

Prepaid Rent $3,000

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

engine assembler, survey reasearcher, auditor