o To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select (Original Text] from the list. If removal of the underlined text is the best revision to the document, select [Delete Text] from the list if available. To: Katie Pearson, Accounting Manager From: Jim Strong, Staff Accountant RE: New plan's effect on liquidity ratio Date: January 4, Year 7 Good morning Katie, I have reviewed the financial statements. Please see my analysis of the three options below. If we implement Option 1, the current ratio will increase, but the quick ratio will decrease because the quick ratio excludes inventories from the numerator. If we implement Option 1, working capital will increase because accounts receivable, accounts payable, and cash will increase. If Option 2 is implemented, the current ratio and quick ratio will decrease. Option 2, which causes equal char in current assets and current liabilities, has a proporuonally smaller effect on current assets. The increase in cash is offset by the decrease in accounts receivable. Also, if Option 2 is implemented, working capital will increase. Accounts payable and cash will increase. If Option 3 is implemented, the quick ratio and working capital will remain the same. The increase in current assets is equal to the increase in current liabilities Under all three options, the average collection period will decrease. E ---- SASHANE- Please let me know if you have any questions. Jim o To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select (Original Text] from the list. If removal of the underlined text is the best revision to the document, select [Delete Text] from the list if available. To: Katie Pearson, Accounting Manager From: Jim Strong, Staff Accountant RE: New plan's effect on liquidity ratio Date: January 4, Year 7 Good morning Katie, I have reviewed the financial statements. Please see my analysis of the three options below. If we implement Option 1, the current ratio will increase, but the quick ratio will decrease because the quick ratio excludes inventories from the numerator. If we implement Option 1, working capital will increase because accounts receivable, accounts payable, and cash will increase. If Option 2 is implemented, the current ratio and quick ratio will decrease. Option 2, which causes equal char in current assets and current liabilities, has a proporuonally smaller effect on current assets. The increase in cash is offset by the decrease in accounts receivable. Also, if Option 2 is implemented, working capital will increase. Accounts payable and cash will increase. If Option 3 is implemented, the quick ratio and working capital will remain the same. The increase in current assets is equal to the increase in current liabilities Under all three options, the average collection period will decrease. E ---- SASHANE- Please let me know if you have any questions. Jim