Background InformationSaola Co. sells backpacks, laptop bags, briefcases, and other bags. The bags are purchased already made, then the Saola branding and finish is added. Because of several exclusive contracts and high quality products, the company has a strong following in its home state of Georgia and the surrounding area. In addition to its own brand, the company also has contracts with many colleges, firms, and local organizations to sell bags with these other groups' logos. This practice has greatly increased Saola's sales, especially since the company is usually able to use lower quality inventory to fill these orders (this leads to lower costs for the other groups without damaging Saola's reputation).Because of its success during the past two (2) years, Saola was able to go public in January of last year. This has given the company additional capital to grow, as well as allowing the original owners to diversify some of their risk. Management's goal now is to begin marketing in the Northeast and Central regions of the country. If they are successful, they will continue on to the West Coast within a few years. Since much of their advertising is done through personal contacts and word of mouth, their growth will be slow. While that worries some of their new investors, recent economic trouble has left many investors pleased with the management team's more cautious growth.In their rush to go public, Saola's management has forgotten one small detail. They have not created a very strong accounting department. While their auditors have been willing to help them clean up their books in the past, the managers are starting to realize that their lack of in-house accounting expertise is a problem. During the past year they engaged in several transactions and decisions that might have important repercussions on their financial statements, and they didn't know it. In an effort to start cleaning up their accounting system, they have finally hired you and your partner. Your first job will be to go through Saola's decisions for the year and clean up any mistakes that have been made, and to record any transactions that have been missed. In the future, you will be expected to give management good advice about the accounting consequences of their actions before decisions are made.Based on recommendations from their auditor and SEC regulations, Saola uses an accrual accounting system based on U.S. GAAP. The company's fiscal year end is December 31st. Since Saola is a relatively small public company with an easy audit, the auditors don't usually arrive until about January 15th. However, you are expected to have the financial statements ready to go by January 1st so that upper management can issue an earnings announcement to the stockholders. Although an earnings announcement is known to be unaudited, investors are traditionally very harsh with companies that have a final earnings number below the initial earnings announcement. You will need to be as accurate as possible in order to avoid this type of market consequence.Saola has already completed most of the necessary transactions for the current year (see below). However, they have neglected to include several key pieces of information. Throughout the semester, you will be adding and incorporating this additional information to complete the company's financial report. Saola's tax rate is 30%.Information:Under new GAAP (the Current Expected Credit Loss or 'CECL' rules), companies are required to estimate their Allowance for Bad Debt based not only on their historical loss rates but also on current market conditions and future predictions. The accounting process is the same (debit Bad Debt Expense and credit Allowance for Bad Debt), but the estimate is different. Based on the new rules, Saola's management team has decided to adjust their historical rate based on a weighted average of their prediction of general economic risk in their area (weighted at 55.%) and on the credit risk of their customers (weighted at 45.%), as their loss rate. No adjusting entry has been made this year for bad debt.At the beginning of the year, Saola's collection team reported a historical loss rate of 5.%. They believe the local economy will grow by 1.% and that their average customer's credit risk has increased by 3.%. They have also decided to round their calculations to three (3) decimal places for consistency.In addition, the team reported that on December 31, they received a $12,000 payment from SSG, Inc. Saola closed SSG's account in July when they believed the company would not be able to pay any of their outstanding bill. No entries have been made for this transactions either.Saola's management would like to know the effect of these adjustments on the following ratios:? Quick Ratio ([Cash + Cash Equivalents + net A/R*] / Current Liabilities) ? Accounts Receivable Turnover Ratio (Net Sales / Average net A/R)? Current Ratio (Current Assets / Current Liabilities)Assignment:CalculationsMake the appropriate journal entries, if any, to account for the changes in receivables (including any necessary changes to income tax expense).Make any necessary changes to the financial statements.*Net A/R = A/R - Allowance for Bad debtCritical ThinkingCalculate each of the required ratios using the original values (before any changes) and the updated values (after your changes).Saola's VP of Marketing was concerned about the change in the recognized Allowance for Bad Debt, especially since her department has not changed any of their policies or procedures. How could you explain to her the need to use the new rules and the likely reaction of Saola's stakeholders to the change?The CFO, like many other financial leaders (including the VP of Marketing), has expressed frustration with the new CECL requirements for adjusting the loss rate. However, she has raised the possibility of using the new rules to improve future earnings. Since the company's financial results are strong this year, she has suggested increasing the loss rate so that they will have a higher bad debt expense and allowance this year, allowing them to record smaller expenses in the future. Assuming you feel that this suggestion would be misleading to investors, what business arguments could you use to convince the CFO not to create these "cookie jar reserves" for future years?Hints:You'll need to adjust A/R and the Allowance for Bad Debt for the write off and unexpected repayment BEFORE you can make the adjusting entry for bad debt. Since they are changing, I recommend creating t-accounts for both accounts. Once you have the updated balances for each account (after the adjustments), then you can use those updated balances and your adjusted loss rate to calculate the adjusting entry for bad debt.To calculate the percentage needed to estimate the ending Allowance for Bad Debt, you'll need to first calculate the weighted average of the economic and risk adjustments. For example, if they believe that economic risk will decrease by 10%, but that their customer's risk has increased by 4%, then they would subtract 3.7% from their historical loss rate. Remember to round to 3 decimal places!page8image48599200Economic Growth Credit RiskCECL AdjustmentCurrent Estimate-10.0% 4.0%Weight55.0% 45.0%Estimate-5.5% 1.8%-3.7%page8image485124323. Notice that I used negative for the current estimate for economic growth in the table above. If we think the economy will GROW, then the economic risk will SHRINK, so we use a NEGATIVE number for our current estimate. Similiarly, if we think our customer risk will DECREASE, then our risk will SHRINK and we'll use a negative number for our current estimate. Make sure you check the wording for Saola's assumptions so that you can use the correct sign!Final journal entries is what says next to financial ratios box. Please answer all questions .Thank you so much !

I Multi-Step Income Statement M Z O For Year Ended December 31, 2021 Balance Sheet Statement of Cash Flows As of 12/31/2021 Financial Ratios Sales Revenue For Year Ended December 31, 2021 Sales Revenue 2021 Before After 2020 $25,900,000 Cash Flow from Operations Assets Less: Sales Discounts Net Income $310,800 $3, 130,907 Current Assets Sales Returns Adjustments: $1,230,250 $1,541,050 Cash Net Sales Revenue $1, 114,000 $1,295,000 Change in A/R $24,358,950 ($695,415) A/R $2,331,000 $2,201,500 Change in Inventory $518.000 Allowance for Bad Debts ($81,585) Cost of Goods Sold ($647,500) Change in Prepaid Insurance $44.250 Inventory Cost of Goods Sold $3, 108,000 $3,626,000 $14, 176,593 Change in Prepaid Rent ($64,750) Prepaid Insurance Gross Profit $344,250 $388,500 Depreciation & Amortization $1,554,000 $10, 182,357 Prepaid Rent $323,750 $259,000 Change in A/P ($1, 171,792) Total Current Assets $7, 139,415 Operating Activities $7, 122,500 Change in Income Tax Payable $194,250 Long-term Investments Selling Expenses Change in Unearned Revenue $259,000 Loans to other businesses $1,036,000 $1,036,000 Change in Wages Payable ($12,950) $624,593 Advertising Expense $485,625 Expansion Fund $777,000 $777,000 Net Cash Flow from Operations $3,755,500 Miscellaneous Selling Expenses $29,785 Total Long-term Investments $1,813,000 $1,813,000 Sales Force Salaries Expense $356, 125 PPE Cash Flow from Investments Selling Commissions Expense $1,295,000 Land $2,849,000 $1,813,000 Purchase of Land $1,036,000) Shipping Expense $212,056 Building $2,072,000 $2,072,000 Purchase of Equipment ($3,885,000) $2, 378,591 Equipment $7,252,000 $3,367,000 Net Cash Flow from Investments ($4,921,000) Administrative Expenses Accumulated Depreciation ($4, 144,000) ($2,590,000) Critical Thinking #1 Consulting and Legal Fees Expense $16, 188 Total PPE $8,029,000 $4,662,000 Cash Flow from Financing Executive Salaries Expense $1, 133, 125 Intangible Assets Repayment of Loans ($129,500) Depreciation Expense $1,554,000 Patents, net $388,500 $388,500 Issuance of Notes Payable $1,554,000 Insurance Expense $223,388 Total Assets $17,369,915 $13,986,000 Payments of Dividends ($440,000) Miscellaneous Admin. Expenses $12,788 Net Cash Flow from Financing $984,500 Office Supplies Expense $100,363 Liabilities and Stockholders' Equity Utilities Expense $194.250 Current Liabilities Net Increase (Decrease) in Cash ($181,000) Total Administrative Expenses $3,234, 102 $5,612,693 Accounts Payable $382,208 $1,554,000 Cash, January 1, Year 2 1,295,000 Income from Operations $4,569,664 Income Tax Payable $453,250 $259,000 Cash, December 31, Year 2 $1,114,000 Unearned Revenue $647,500 $388,500 Critical Thinking #2 Other Gains and Losses Wages Payable $310,800 $323,750 $80,938 Current Portion of Loan Payable $129,500 $129,500 Rent Revenue Interest Expense ($165, 113) ($84, 175) Total Current Liabilities $1,923,258 $2,654,750 Income from Continuing Operations before Taxes $4,485,489 Long-term Debt Income Tax Expense ($1,354,582) Loan Payable $647,500 $777,000 $3,626,000 $2,072,000 Net Income $3, 130,907 Notes Payable Total Long-term Debt $4,273,500 $2,849,000 $6, 196,758 $5,503,750 EPS $1.04 Total Liabilities Stockholders' Equity Common Stock $3,000,000 $3,000,000 Calculations ($1 par, 5,000,000 authorized, 3,000,000 outstanding) Additional Paid-In Capital $777,000 $777,000 Retained Earnings $7,396, 157 $4,705,250 Total Stockholders' Equity $11, 173, 157 $8,482,250 Total Liabilities and Stockholder's Ed $17,369,915 $13,986,000