Question

Assume Killough & Kirkland, the accounting firm, advises Beachfront Seafood Sales that its financial statement must be changed to conform to GAAP. At December 31, 2014, Beachfront’s accounts include the following:
Cash................................................................ $15,000
Investment in Trading Securities, at cost......... 9,000
Accounts receivable......................................... 31,000
Inventory......................................................... 28,000
Prepaid expenses............................................. 7,000
Total current assets..................................... $90,000
Accounts payable.......................................... $30,000
Other current liabilities.................................. 19,000
Total current liabilities................................ $49,000
The accounting firm advised Beachfront of the following:
■ Cash includes $4,000 that is deposited in a compensating balance account that will be tied up until 2016.
■ The market value of the trading securities is $8,700. Beachfront purchased the trading securities a couple of weeks ago.
■ Beachfront has been using the direct write-off method to account for uncollectible receivables. During 2014, Beachfront wrote off bad receivables of $600. The aging of Beachfront’s receivables at year-end indicated uncollectibles of $2,400.
■ Beachfront reported net income of $54,000 for 2014.

Requirements
1. Restate Beachfront’s current accounts to conform to GAAP. (Challenge)
2. Compute Beachfront’s current ratio and quick (acid-test) ratio both before and after your corrections.
3. Determine Beachfront’s correct net income for 2014. (Challenge)



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  • CreatedJuly 25, 2014
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