The top managers of Whelan Gift Stores seek the counsel of Ernst \& Young, the accounting firm, and learn that Whelan must make some changes to bring its financial statements into conformity with IFRS. At December 31, 2020, Whelan Gift Stores accounts include the following:

As the accountant from Ernst \& Young, you draw the following conclusions:

- Cash includes \(\$ 6,000\) that is deposited in a restricted account that will be tied up until 2022 - Whelan Gift Stores did not estimate their uncollectible accounts but rather wrote them off when they found out that the customer could not pay them. During 2020, the company wrote off bad receivables of \(\$ 4,000\). Ernst \& Young determines that bad debt expense for 2020 should be \(\$ 9,000\) based on the allowance method.

- Whelan Gift Stores reported net income of \(\$ 81,000\) for 2020.

Requirements

1. Restate all current accounts to conform to IFRS.

2. Using the facts provided, calculate the information that is relevant in determining the liquidity of the company before and after the corrections.

3. Determine Whelan Gift Stores' correct net income for 2020.

4. How does using the allowance method to estimate uncollectible accounts benefit the investors and creditors?

Transcribed Image Text:

Cash.... Short-term trading investments Accounts receivable. Inventory.. Prepaid expenses Total current assets. $ 23,000 24,000 54,000 45,000) 17,000 $153,(KX) Accounts payable.... 46,000 Other current habilities. 59,000 Total current liab.luiesce a senare supplere Centers car as of $115,000