3 of 24 Question C: Analysis of Financial Statements (14 marks; 25 minutes) The condensed statement of financial position of Infotech, Inc. as at December 31, 2020 is shown below: Assets Cash Accounts receivable, net Inventory Plant and equipment, net Infotech, Inc. Statement of Financial Position As at December 31, 2020 Liabilities and Shareholders' Equity $ 40,000 Current liabilities $ 80,000 80,000 Long-term debt 120,000 130,000 Common shares 200,000 250,000 Retained earnings 100.000 Total liabilities and $500.000 shareholders' equity $500.000 Total assets Net sales for 2020 were $800,000, including cash sales of $200,000, gross profit was $320,000, and net earnings were $40,000. The long-term debt was outstanding all year, and the interest expense for 2020 was $12,000. The company is subject to an income tax rate of 40% On December 31, 2019, Infotech, Inc, had the following account balances: Accounts receivable (net) $76,000; inventory, $110,000, shareholders' equity, $260,000, and total assets, $440,000 Required (Round the results of your calculations to two decimal places): 1. Compute Infotech's current ratio at December 31, 2020 and indicate how it would change if the company paid $20,000 of its current liabilities as its first transaction of the Ver20212/25 markal MacBook Air kdown Assets Cash Accounts receivable, net Inventory Plant and equipment, net $ 40,000 80,000 130,000 250.000 Current liabilities Long-term debt Common shares Retained earnings Total liabilities and shareholders' equity 2: 200.000 100,000 $500.000 $500.000 Total assets Net sales for 2020 were $800,000, including cash sales of $200,000, gross profit was $320,000, and net earnings were $40,000. The long-term debt was outstanding all year, and the interest expense for 2020 was $12,000. The company is subject to an income tax rate of 40%. On December 31, 2019, Infotech, Inc. had the following account balances: Accounts receivable (net), $76,000; inventory, $110,000, shareholders' equity, $260,000, and total assets, $440,000. Required (Round the results of your calculations to two decimal places): 1. Compute Infotech's current ratio at December 31, 2020 and indicate how it would change if the company paid $20,000 of its current liabilities as its first transaction of the year 2021? (2.5 marks) 2. Identify and calculate three profitability ratios for 2020. Explain what each ratio measures and its significance. (6 marks) 3. Identify and calculate two asset turnover ratios for 2020. Explain what each ratio measures and its significance. (4 marks) 4. Would the gross profit percentage increase, decrease or remain unchanged as a result of writing down the cost of ending inventory to its net realizable value? Explain. Calculations are not required. (1.5 marks)