Assume Deloitte & Touche, the accounting firm, advises Pappadeaux Seafood that Pappadeaux's financial statements must be changed

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Assume Deloitte & Touche, the accounting firm, advises Pappadeaux Seafood that Pappadeaux's financial statements must be changed to conform to GAAP. At December 31, 2014, Pappadeaux's accounts include the following:
Cash ........................................................................................................... $ 51,000
Short-term trading investments, at cost ...................................................... 19,000
Accounts receivable .................................................................................... 37,000
Inventory ................................................................................................... 61,000
Prepaid expenses ........................................................................................ 14,000
Total current assets ................................................................................. $182,000
Accounts payable ....................................................................................... $ 62,000
Other current liabilities .............................................................................. 41,000
Total current liabilities ............................................................................ $103,000
Deloitte & Touche advised Pappadeaux that:
• Cash includes $20,000 that is deposited in a compensating balance account that is tied up until 2016.
• The fair value of the short-term trading investments is $17,000. Pappadeaux purchased the investments a couple of weeks ago.
• Pappadeaux has been using the direct write-off method to account for uncollectible receivables. During 2014, Pappadeaux wrote off bad receivables of $7,000. Deloitte & Touche determines that bad debt expense for the year should be 2.5% of sales revenue, which totalled $600,000 in 2014.
• Pappadeaux reported net income of $92,000 in 2014.
Requirements
1. Restate Pappadeaux's current accounts to conform to GAAP.
2. Compute Pappadeaux's current ratio and acid-test ratio both before and after your corrections.
3. Determine Pappadeaux's correct net income for 2014.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Financial Accounting

ISBN: 978-0133472264

5th Canadian edition

Authors: Charles Horngren, William Thomas, Walter Harrison, Greg Berberich, Catherine Seguin

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