Clovis Enterprises reports $845,500 in credit sales for 2018 and $933,000 in 2019. It has a $758,000 accounts receivable balance at the end of 2018 and $841,000 at the end of 2019. Clovis uses the income statement method to record bad debt estimation at 4% during 2018. To manage earnings more favorably, Clovis changes bad debt estimation to the balance sheet method at 5% during 2019.
A. Determine the bad debt estimation for 2018.
B. Determine the bad debt estimation for 2019.
C. Describe a benefit to Clovis Enterprises in 2019 as a result of its earnings management.
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Principles of Management