(Learning Objectives 1, 4, 7: Apply GAAP for short-term investments and uncollectible receivables; evaluate liquidity through ratios) Assume Killough & Kirkland, the accounting firm, advises Beachfront Seafood Sales that its financial statement must be changed to conform to GAAP. At December 31, 2014, Beachfront’s accounts include the following:
The accounting firm advised Beachfront of the following:
* Cash includes $4,000 that is deposited in a compensating balance account that will be tied up until 2016.
* The market value of the trading securities is $8,700. Beachfront purchased the trading securities a couple of weeks ago.
* Beachfront has been using the direct write-off method to account for uncollectible receivables. During 2014, Beachfront wrote off bad receivables of $600. The aging of Beachfront’s receivables at year-end indicated uncollectibles of $2,400.
* Beachfront reported net income of $54,000 for 2014.