Reference no: EM131768242

Problem - In 2011, three years after it began operations, Michel Enterprises decided to change from the direct write-off method of recording bad debts to estimating bad debts. The following information is available to you:

	Year
	2008	2009	2010	2011
Sales	$125,000	$180,000	$250,000	$280,000
Credit Sales	90,000	158,000	210,000	235,000
Collections on accounts receivable
2008 Sales	78,000	8,500	200
2009 Sales		137,000	15,000	300
2010 Sales			178,800	19,500
2011 Sales				200,000
Accounts receivable written off
2008 accounts	2,500	500	300	-
2009 accounts		4,600	700	400
2010 accounts			6,200	1,000
2011 accounts				6,800

Required -

1. Prepare an analysis to determine Michel's estimated bad debt expense percentage based upon the average relationship of actual bad debts to credit sales.

2. Prepare an analysis to determine Michel's estimated percentage of allowance for doubtful accounts based on year-end accounts receivable.

3. What amount should Michel record as bad debts expense for 2011 if:

a. Bad debts are estimated as a percentage of credit sales?

b. Allowance for doubtful accounts is estimated as a percentage of outstanding year-end accounts receivable?