Determine deep sea seafoods correct net income for 2016

Question

Question 1 - Multi Media Ltd. completed the following transactions:

• September 14, 2016: Provided services to Inga Corporation on account, $3,000, terms 30 days.
• November 1, 2016: Accepted a one-year, 12% note from Inga Corporation to settle its account.
• December 31, 2016: Accrued interest on the note from Inga Corporation (round to the nearest dollar).
• November 1, 2017: Received amount due from Inga Corporation.

Required: Record entries for the above transactions.

Question 2 - Compute the unknowns for the following transactions dealing with interest on notes receivable. 365 days per year. Round your answers to the nearest dollar.

Principal Rate	Interest	Duration	Interest Value	Maturity
$10,000	10%	120 days	E	G
$25,000	12%	C	$2,515	H
A	6%	180 days	$2,959	I
$50,000	B	60 days	$493	J
$36,000	9%	D	F	$36,710

Question 3 - Dunder Mifflin had the following balances in selected accounts at the end of 2015 and 2016.

	2015	2016
Cash	$58,000	$45,000
Short-term investments	46,000	39,000
Accounts receivable	54,000	61,000
Allowance for uncollectible accounts	3,500	5,000
Inventory	78,000	98,000
Accounts payable	91,000	102,000
Wages payable	17,000	25,000
Income tax payable	4,500	6,500
Note payable (due 2022)	100,000	100,000
Sales	415,000	525,000
Cost of goods sold	225,000	304,000

The accounts receivable at the end of 2014 were $50,000 and the allowance for uncollectible accounts was $2,500.

Required:

1. Calculate the acid test ratio for 2015 and 2016 for Dunder Mifflin.
2. Calculate the days sales in receivables for 2015 and 2016 for Dunder Mifflin.
3. Determine whether the acid-test ratio improved or deteriorated from 2015 to 2016.
4. Determine whether the collection period increased or decreased from 2015 to 2016.

Question 4 - StorageTek Corporation gathered the following information from its accounting records for the year ended December, 31, 2016, prior to adjustment:

• Net credit sales for the year = $1,150,000
• Accounts Receivable (Dec 31, 2016) = $93,000
• Allowance for Uncollectible Accounts, prior to adjustment (Dec 31, 2016) = $6,000 debit balance
• StorageTek Corporation uses the allowance method of accounting for bad debts and estimates bad debts at 2.5% of net credit sales.

Required:

1. Prepare the adjusting entry on December 31, 2016.
2. Determine the balance in the Allowance for Uncollectible Accounts account after the adjusting entry is recorded.
3. Show how the receivables would be reported on the December 31, 2016, Balance Sheet for Storage Tek Corporation.

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	$51,000
Short-term trading investments, at cost	19,000
Accounts receivable	37,000
Inventory	61,000
Prepaid expenses	14,000
Total current assets	$182,000
Accounts payable	$62,000
Other current liabilities	41,000
Total current liabilities	$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.
• 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.