Please show how you derived and calculated all numbers and explain all steps. PLEASE COMPLETE PART (a) ONLY. Thank you.

ZETA CORPORATION Consolidated Balance Sheets As of December 31, Year 6 and Year 5 ZFTA CORPOR ATION ZETA CORPORATION Notes to Consolidated Financial Statements (\$ thousands) Note 1: Change in accounting principle During Year 6 , the company broadened its definition of overhead costs to be included in the determination of inventories to more properly match costs with revenues. The effect of the change in Year 6 is to increase income from continuing operations by $400. The adjustment of $1,000 (after reduction for income taxes of $1,000 ) for the cumulative effect for prior years is shown in the net income for Year 6 . The pro forma amounts show the effect of retroactive application of the revised inventory costing assuming that the new method had been in effect for all prior years. Note 2: Inventories Inventories are priced at cost (principally last-in, first-out [LIF0] method of determination) not in excess of replacement market. If the first-in, first-out (FIF0) method of inventory accounting had been used, inventories would have been $6,000 and $4,500 higher than reported at December 31 , Year 6 , and December 31 , Year 5 , respectively. Note 3: Acquisition of TRO Company Effective December 31, Year 6, the company purchased most of the outstanding common stock of TR0 Company for $8,000 in cash. The excess of the acquisition cost over fair value of the net assets acquired, $2,000, will be recorded as goodwill and not amortized. The following unaudited supplemental pro forma information shows the condensed results of operations as though TRO Company had been acquired as of January 1 , Year 5 . (concluded) The various loan agreements place certain restrictions on the corporation including the payment of cash dividends on common stock and require the maintenance of working capital, as defined, of not less than $18,000. Approximately $10,000 of retained earnings is available for payment of cash dividends on common stock at December 31, Year 6 . The corporation entered into several long-term noncancelable leases of equipment during Year 6 which have been capitalized for financial reporting. There are no other significant lease arrangements. Note 7: Stockholders' equity The corporation has 5 million shares of authorized common stock, par value $5. There are 1 million shares outstanding at December 31 , Year 5 , and this is increased by a 10% dividend payable in common stock during Year 6 . The changes in retained earnings are as follows: Details of acquisition (resources and obligations assumed): Note 4: Discontinued operations As of 0ctober 31, Year 6, the board of directors adopted a plan authorizing the disposition of the assets and business of its wholly owned subsidiary, Zachary Corporation. The "Loss on Disposal" is $700 (net of income tax credits of $700 ) and is based upon the estimated realizable value of the assets to be sold plus a provision for costs of $300 for operating the business until its expected disposition in early Year 7. Property, plant, and equipment is reduced by $1,000 and inventories are reduced by $100 to net realizable value. The provision for costs of $300 is included in "Accounts payable and accruals" and is reduced to $200 at year-end. Net sales of the operations to be discontinued are $18,000 in Year 6 and $23,000 in Year 5. Note 5: Income taxes The income tax expense consists of the following: The effective tax rates of 47.6% and 48.8% for Year 6 and Year 5 , respectively, differ from the statutory federal income tax rate of 50% due to research and development tax credits of $500 in Year 6 and $200 in Year 5. Deferred taxes result from the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial reporting. ZETA CORPORATION As lending officer for Prudent Bank, you are analyzing the financial statements of ZETA Corporation (see Case CC-2 in the Comprehensive Case Chapter for data) as part of ZETA's loan application. Your superior requests you evaluate ZETA's liquidity using the two-year financial information available. The following additional information is acquired (in $ thousands): Inventory at January 1 , Year 5, \$32,000. Required: a. Compute the following measures for both Years 5 and 6 : (1) Current ratio. (2) Days' sales in receivables. (3) Inventory turnover. (4) Days' sales in inventory. (5) Days' purchases in accounts payable (assume all cost of sales items are purchased). (6) Cash flow ratio. b. Comment on any significant year-to-year changes identified from the analysis in (a). Note 6: Long-term debt * Adjustments of noncash transactions arising from discontinued operations (see note 4). Adjustments relating to acquisition of TRO Co0 (note 3)