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)