Response to the following problem:
Elliot Inc. has the following unadjusted account balances at December 31, 2015:
Account Balances Debit Credit
Accounts Receivable $50,000
Allowance for Doubtful Accounts 1,000
Sales $200,000
Required:
1. Assume Elliot estimates that two per cent of its sales will not be collected.
a. What amount of bad debt expense will be reported on Elliot's income statement at December 31, 2015?
b. What amount of allowance for doubtful accounts will be reported on Elliot's balance sheet at December 31, 2015?
2. Assume Elliot estimates that five per cent of accounts receivable will not be collected.
a. What amount of bad debt expense will be reported on Elliot's income statement at December 31, 2015?
b. What amount of allowance for doubtful accounts will be reported on Elliot's balance sheet at December 31, 2015?
3. Which calculation provides better matching: that made in question 1 or in question 2? Why?