Below are the financial statements for Better Tomorrow Ltd:

Statements of Financial Position

2022 and 2021

Assets 2022 2021

Cash .................................................................................................. $ 100,000 $ 160,000

Accounts receivable (net).................................................................. 60,000 240,000

Prepaid expenses............................................................................... 200,000 120,000

Inventory ........................................................................................... 600,000 680,000

Property, plant and equipment.......................................................... 640,000 800,000

Total assets ................................................................................. $1,600,000 $2,000,000

Liabilities and Equity

Accounts payable .............................................................................. $ 160,000 $ 300,000

Salaries and wages payable .............................................................. 80,000 360,000

Debentures payable .......................................................................... 320,000 622,000

Share capital ..................................................................................... 680,000 418,000

Retained earnings ............................................................................. 360,000 300,000

Total liabilities and equity..................................................... $1,600,000 $2,000,000

Income Statement

For the year ended 31 December 2022

Net sales (on credit) .......................................................................... $3,500,000

Cost of sales ...................................................................................... 2,600,000

Gross profit ....................................................................................... 900,000

Expenses

Administrative expenses ............................................................. $95,000

Selling expenses ......................................................................... 120,000

Interest expense .......................................................................... 80,000

Total expenses ...................................................................... 295,000

Profit before income tax ................................................................... 605,000

Income tax expense .......................................................................... 181,500

Profit after tax ................................................................................... $ 423,500

Required:

a) Compute the following ratios for Better Tomorrow for 2022 (2 marks):

i. Quick ratio

ii. Debt to total assets

iii. Returns on asset

iv. Times interest earned

b) Independent of part (a), if below are some selected ratios for a Greater Tomorrow Ltd and its competitor (Prosperity Ltd), evaluate the entitys solvency relative to its competitor using only the relevant ratios (1 mark).

	Greater Tomorrow Ltd (2022)	Prosperity Ltd (2022)
Debt to total assets	20%	70%
Times interest earned	10.5 times	1.5 times
Average collection period	60 days	50 days