Question

Assume Weithorn & Wesley, the accounting firm, advises Lakeside Seafood that its financial statements must be changed to conform to GAAP. At December 31, 2014, Lakeside’s accounts include the following:
Cash..................................................................................... $21,000
Investment in trading securities, at cost................................ 14,000
Accounts receivable.............................................................. 29,000
Inventory.............................................................................. 28,000
Prepaid expenses.................................................................. 6,000
Total current assets.......................................................... $98,000
Accounts payable.............................................................. $30,000
Other current liabilities....................................................... 27,000
Total current liabilities..................................................... $57,000
The accounting firm advised Lakeside of the following:
■ Cash includes $9,000 that is deposited in a compensating balance account that is tied up until 2016.
■ The market value of the trading securities is $12,000. Lakeside purchased the investments a couple of weeks ago.
■ Lakeside has been using the direct write-off method to account for uncollectible receivables. During 2014, Lakeside wrote off bad receivables of $500. The aging of Lakeside’s receivables at year-end indicated uncollectibles of $1,700.
■ Lakeside reported net income of $46,000 in 2014.

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



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  • CreatedJuly 25, 2014
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