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(a) Indicate, by using ratios, the change in liquidity and profitability of Inca Company from 2006 to 2007. (Note: Not all profitability ratios can be computed nor can cash basis
ratios be computed.)
(b) Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 2007, and (2) as of December 31, 2008, after giving effect to the situation. Net income for 2008 was $40,000. Total assets on December 31, 2008, were $900,000.
1. 18,000 shares of common stock Return on common stockholders' equity were sold at par on July 1, 2008
2. All of the notes payable were Debt to total assets paid in 2008
3. The market price of common Price-earnings stock was $9 & $12 on December 31, 2007 & 2008.
The solution calculates the change in liquidity and profitability by using ratios.