(Learning Objectives 5, 7: Apply GAAP for uncollectible receivables; evaluateliquidity through ratios) Wronkovich & Sells, an accounting firm, advises Off the BoatSeafood that its financial statements must be changed to conform to GAAP. At December 31,2018, Off the Boat’s accounts include the following:Cash..................................................................................... $83,000Accounts receivable.............................................................. 40,000Inventory.............................................................................. 57,000Prepaid expenses.................................................................. 18,000Total current assets.......................................................... $198,000Accounts payable ................................................................. $62,000Other current liabilities........................................................ 42,000Total current liabilities..................................................... $104,000The accounting firm advised Off the Boat of the following:■ Off the Boat has been using the direct write-off method to account for uncollectiblereceivables. During 2018, the company wrote off bad receivables of $4,500. The agingof Off the Boat’s receivables at year-end indicated uncollectibles of $28,500.■ Off the Boat reported net income of $93,000 in 2018.Requirements1. Restate Off the Boat’s current accounts to conform to GAAP. (Challenge)2. Compute the company’s current ratio and quick (acid-test) ratio both before and after yourcorrection.3. Determine the company’s correct net income for 2018. (Challenge)
(Learning Objectives 5, 7: Apply GAAP for uncollectible receivables; evaluate
liquidity through ratios) Wronkovich & Sells, an accounting firm, advises Off the Boat
Seafood that its financial statements must be changed to conform to GAAP. At December 31,
2018, Off the Boat’s accounts include the following:
Cash..................................................................................... $83,000
Accounts receivable.............................................................. 40,000
Inventory.............................................................................. 57,000
Prepaid expenses.................................................................. 18,000
Total current assets.......................................................... $198,000
Accounts payable ................................................................. $62,000
Other current liabilities........................................................ 42,000
Total current liabilities..................................................... $104,000
The accounting firm advised Off the Boat of the following:
■ Off the Boat has been using the direct write-off method to account for uncollectible
receivables. During 2018, the company wrote off bad receivables of $4,500. The aging
of Off the Boat’s receivables at year-end indicated uncollectibles of $28,500.
■ Off the Boat reported net income of $93,000 in 2018.
Requirements
1. Restate Off the Boat’s current accounts to conform to GAAP. (Challenge)
2. Compute the company’s
correction.
3. Determine the company’s correct net income for 2018. (Challenge)
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