Question 5 Assume Deloitte & Touche, the accounting firm, advises Deep Sea Seafood that their financial statements must be changed to confirm with GAAP. At December 31, 2016, Deep Sea Seafood accounts include the following: Cash Short-term trading investments, at cost Accounts receivable Inventory Prepaid expenses Total current assets Accounts payable Other current liabilities Total current liabilities $51,000 19,000 37,000 61,000 14,000 $182,000 $62,000 41,000 $103,000 Deloitte & Touche advised Deep Sea Seafood that: Cash includes $20,000 that is deposited in a compensating balance account that is tied up until 2018. The fair value of the short-term trading investments is $17,000. Deep Sea Seafood purchased the investments a couple of weeks ago SI 1043 INTRODUCTION TO FINANCIAL ACCOUNTING 10 YORKVILLE UNIVERSITY WWW.YORKVILLEU.CA Deep Sea Seafood has been using the direct write-off method to account for uncollectible receivables. During 2016, Deep Sea Seafood 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 totaled $600,000 in 2016. Deep Sea Seafood reported net income of $92,000 in 2016. 1. Restate Deep Sea Seafood's current accounts to conform to GAAP. 2. Compute Deep Sea Seafood's current ratio and acid-test ratio before and after your corrections. 3. Determine Deep Sea Seafood's correct net income for 2016