In 2008, 3 years after it began operations, the Pearce Corporation decided to change from the direct write-off method of recording bad debts to estimating bad debts. The following information is available to you:

Required
1. Prepare an analysis to determine Pearce€™s estimated bad debt expense percentage based upon the average relationship of actual bad debts to credit sales.
2. Prepare an analysis to determine Pearce€™s estimated percentage of allowance for doubtful accounts based on year-end accounts receivable.
3. What amount should Pearce record as bad debts expense for 2008 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 accountsreceivable?

Year 2005 2006 2007 2008 $125,000 180,000 $250,000 $280,000 210,000 235,000 Credit sales Collections on accounts receivable 90,000 158,000 2005 sales 2006 sales 2007 sales 2008 sales 78,000 8,500 137,000 15,000 178,800 19,500 200,000 Accounts receivable written off 2005 accounts 2006 accounts 2007 accounts 2008 accounts 2,500 4,600 6,200 1,000 6,800