Harold Limited’s condensed financial statements provide the following information:

Instructions

(a) Determine the following:

1. Current ratio at December 31, 2011           

2. Acid-test ratio at December 31, 2011         

3. Accounts receivable turnover for 2011       

4. Inventory turnover for 2011

5. Days payables outstanding for 2011

6. Rate of return on assets for 2011

7. Profit margin on sales

(b) Prepare a brief evaluation of the financial condition of Harold Limited and of the adequacy of its profits.

(c) In examining the other current liabilities on Harold Limited’s balance sheet, you observe that unearned revenues have declined in the current year compared with the previous year. Is this a positive indicator about the client’s liquidity? Explain.

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HAROLD LIMITED Balance Sheet Dec. 31, 2011 $52,000 198,000 80,000 440,000 3,000 773,000 857,000 $1,630,000 Dec. 31, 2010 Cash Accounts receivable (net) Marketable securities (short-term) Inventories Prepaid expenses $60,000 80,000 40,000 360,000 7,000 Total current assets 547,000 853,000 $1,400,000 Property, plant, and equipment (net) Total assets Accounts payable Other current liabilities Bonds payable Common shareholders' equity $220,000 20,000 400,000 990,000 $1,630,000 $145,000 15,000 400,000 840,000 $1,400,000 Total liabilities and shareholders' equity Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross profit Selling and administrative expense Interest expense Net income $1,640,000 (800,000) 840,000 (440,000) (40,000) $360,000