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(Solution) - Assume Adams Murray the accounting firm advises Pappadeaux S

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Assume Adams & Murray, the accounting firm, advises Pappadeaux Seafood that its financial statements must be changed to conform to GAAP. At December 31, 2012, Pappadeaux?s accounts include the following:
Cash..................................................................................... $ 59,000
Short-term investment in trading securities, at cost .............. 27,000
Accounts receivable.............................................................. 37,000
Inventory.............................................................................. 60,000
Prepaid expenses .................................................................. 17,000
Total current assets .......................................................... $200,000
Accounts payable ................................................................. $ 61,000
Other current liabilities ........................................................ 36,000
Total current liabilities ..................................................... $ 97,000

The accounting firm advised Pappadeaux of the following:

Cash includes $18,000 that is deposited in a compensating balance account that is tied up until 2014.
The market value of the trading securities is $13,000. Pappadeaux purchased the investments a couple of weeks ago.
Pappadeaux has been using the direct write-off method to account for uncollectible receivables. During 2012, Pappadeaux wrote off bad receivables of $8,000. Adams & Murray determines that uncollectible-account expense should be 3% of service revenue, which totaled $590,000 in 2012. The aging of Pappadeaux?s receivables at year-end indicated uncollectibles of $9,700.
Pappadeaux reported net income of $90,000 in 2012.

Requirements
1. Restate Pappadeaux?s current accounts to conform to GAAP. (Challenge)
2. Compute Pappadeaux?s current ratio and quick (acid-test) ratio both before and after your corrections.
3. Determine Pappadeaux?s correct net income for 2012.(Challenge)

 







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