This financial information is for Caroline Company:

Additional information:1. Inventory at the beginning of 1997 was \(\$ 115,000\).2. Receivables at the beginning of 1997 were \(\$ 88,000\).3. Total assets at the beginning of 1997 were \(\$ 630,000\).4. No common stock transactions occurred during 1997 or 1998.5. All sales were on account.Instructions

(a) Indicate, by using ratios, the change in liquidity and profitability of Caroline Com-pany from 1997 to 1998. [Note: Not all profitability ratios can be computed nor cancash-basis ratios be computed.]

(b) Given below are three independent situations and a ratio that may be affected. Foreach situation, compute the affected ratio (1) as of December 31, 1998, and (2) as ofDecember 31, 1999, after giving effect to the situation. Net income for 1999 was\(\$ 40,000\). Total assets on December 31, 1999, were \(\$ 700,000\).

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CAROLINE COMPANY Balance Sheet December 31 1998 1997 Assets Cash Short-term investments $ 70,000 $ 65,000 45,000 40,000 Receivables (net) 94,000 90,000 Inventories 130,000 125,000 Prepaid expenses 25,000 23,000 Land 130,000 130,000 Building and equipment (net) 190,000 175,000 Total assets $684,000 $648,000 Liabilities and Stockholders' Equity Notes payable $100,000 $100,000 Accounts payable 45,000 42,000 Accrued liabilities 40,000 40,000 Bonds payable, due 2000 150,000 150,000 Common stock, $10 par 200,000 200,000 Retained earnings 149,000 116,000 Total liabilities and stockholders' equity $684,000 $648,000