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2:08:27 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: Infotech, Inc Statement of Financial Position As at December 31, 2020 Assets Liabilities and Shareholders' Equity Cash $ 40,000 Current liabilities $ 80,000 Accounts receivable, net 80,000 Long-term debt 120.000 Inventory 130,000 Common shares 200,000 Plant and equipment, net 250.000 Retained earnings 100.000 Total liabilities and Total assets $500.000 shareholders' equity $500.000 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, 2020 and indicate how it would change if the company paid $20,000 of its current liabilities as its first transaction of year 2021? (2.5 marks) 2. Identify and calculate three profitability ratios for 2020. Explain what each ratio measures and its significance. (6 marks) Assets Cash Accounts receivable, net Inventory Plant and equipment, net ent of Financial Position As at December 31, 2020 2:08:25 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 $5.09.200 shareholders' equity S520.092 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 ratio or 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)