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Question 1: Multi Media Ltd. completed the following transactions: September 14, 2016: Provided services to Inga Corporation on account, $3,000,...
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.
- 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.
- Restate Deep Sea Seafood’s current accounts to conform to GAAP.
- Compute Deep Sea Seafood’s current ratio and acid-test ratio before and after your corrections.
- Determine Deep Sea Seafood’s correct net income for 2016.