Capstick Ltd. (Capstick) uses the percentage of- credit-sales method of estimating the bad debt expense. Since 2011 Capstick has used too low a percentage in calculating the bad debt expense each year. In 2015 management realized the error and decided to make an adjusting entry to correct it. Credit sales every year from 2011 through 2015 were \($1,200,000\). Capstick determined the bad debt expense using 1.5 percent of revenue as the basis of its estimate each year.

Management decides it will use 1.75 percent beginning in 2016 (and should have done since 2011). Capstick has written off \($18,000\) of accounts receivable each year from 2011 through 2015. The credit balance in the allowance account on January 1, 2011

(the first day of Capstick’s fiscal year) was $21,000.

a. What bad debt expense did Capstick record in each year from 2011 to 2015?

b. What was the effect on net income each year of using too low a bad debt expense estimate?

c. What was the balance in the allowance account at the end of each year?

d. What effect does correcting the error have on net income in 2015?

e. Prepare the journal entry that Capstick would make in 2015 to correct the error and leave an appropriate balance in the allowance account. Assume the adjusting entry to correct the error is made after the entry to record the 2015 bad debt expense.