1) Felbin Inc. is in the second quarter of its first year of operations, and it plans to use the allowance method to account for its receivables. The CFO of the company is evaluating three different approaches to the allowance method, and the impact that each may have on the company's financial statements. The CFO estimates sales for the year will be $4.75 million, with $4.5 million on credit. The tax rate for Fel bin is 30%. The CFO asks you to prepare an analysis of what the year-end journal entries might look like under three different assumptions. Based on your analysis, the CFO will determine which one of the three independent approaches to take when recording bad debts expense at year-end. Assumption 1: Income Statement Approach Felbin uses the income statement approach and estimates 2% of credit sales will be uncollectible. In the event economic conditions worsen during the year, the CFO would revise his uncollectible percentage to 3% he Felbin uses the balance sheet approach with estimated uncollectibles of 2% of ending receivables. This will result in an estimated charge to bad debt expense of $84,200. The uncollectible percentage would be increased to 2.5% if economic conditions worsen. As an alternative to the basic balance sheet approach, the CFO has drafted an estimated aging schedule (shown below). If economic conditions worsen, the CFO believes a one percentage point increase in the uncollectible percentages would be appropriate. Estimated Percent Uncollectible 196 3% 5% Estimated S Uncollectible 17,500 41,850 41,000 49,000 149,350 Percent if Economy Days Outstanding Less than 30 days 30-60 days 61-120 days Greater than 120 days A/R Amount 1,750,000 1,395,000 820,000 245,000 Worsens 2% 4% 6% 21% otal Using the CFO's estimate of sales and accounts receivable for the year, prepare the following proposed journal entries for the CFO to review: A) Assuming the Income Statement approach is used and economic conditions do not worsen, prepare the B) Assuming the Income Statement approach is used and economic conditions worsen, provide the journal entry C.) Assuming the Balance Sheet approach is used and economic conditions worsen, provide the journal entry D) Assume the aging method is used. What is the expected charge to bad debt expense under the assumption journal entry that would be made for the year that would be made for the year that would be made for the year that economic conditions worsen