Place cake on aluminum-foil-covered piece of heavy cardboard. Place strips of waxed paper under bottom edge of cake.
With small knife, cut circular well in center of cake, 1-1/2 inches in from sides and 1-1/2 inches deep; carefully remove cake from center.
Tint 1 cup frosting blue. Spread thin layer on inside walls of pool. Attach sprinkles to wall. Frost bottom of pool.
Spread top of cake with 1/2 cup vanilla frosting. Tint remaining 1/2 cup frosting and coconut green.
Frost outside of cake with green frosting. Cover with coconut.
Position cookie and licorice as diving board. Place gum balls as beach balls. Remove waxed paper.