Financial information for Cao Inc. follows.

Instructions
(a) Calculate the following ratios or relationships of Cao Inc. Assume that the ending account balances are representative unless the information provided indicates differently.
1. Current ratio
2. Inventory turnover
3. Receivables turnover
4. Average age of receivables (days sales outstanding)
5. Average age of payables (days payables outstanding)
6. Earnings per share
7. Profit margin on sales
8. Rate of return on assets
(b) For each of the following transactions, indicate whether the transaction would improve, weaken, or have no effect on the current ratio of Cao Inc. at December 31, 2014.
1. Writing off an uncollectible account receivable for $2,200
2. Receiving a $20,000 down payment on services to be performed in 2015
3. Paying $40,000 on notes payable (short-term)
4. Collecting $23,000 on accounts receivable
5. Purchasing equipment on account
6. Giving an existing creditor a short-term note in settlement of an open account owed

Transcribed Image Text:

CAO INC. Statement of Financial Position December 31, 2014 $45,000 Cash Receivables Less: Allowance Inventories Prepaid insurance Land Equipment (net) Notes payable (short-term) Accounts payable Accrued liabilities Share capa (52,000 shares) Retained earnings $50,000 32,000 5,000 260,000 141,000 $110,000 15,000 95,000 170,000 8,000 20,000 150,000 $488,000 $488,000 Income Statement For the Year Ended December 31, 2014 $1,400,000 Sales Cost of goods sold Inventory, Jan. 1, 2014 Purchases $200,000 790,000 990,000 170,000 Cost of goods available for sale Inventory, Dec. 31, 2014 Cost of goods sold Gross profit on sales Operating expenses Net income 820,000 580,000 170,000 $410,000