Problem 16-43 Liquidity Analysis The following selected information is taken from the financial statements of Arnn Company for its most recent year of operations: Beginning balances: Inventory Accounts receivable $200,000 300,000 Ending balances: Inventory $250,000 Accounts receivable 400,000 Cash 100,000 Marketable securities (short-term) 200,000 Prepaid expenses 50,000 Accounts payable 175,000 Taxes payable 85,000 Wages payable 90,000 Short-term loans payable 50,000 During the year, Arnn had net sales of $2.45 million. The cost of goods sold was $1.3 million. Required: Note: Round all answers to two decimal places. 1. Compute the current ratio. 2. Compute the quick or acid-test ratio. 3. Compute the accounts receivable turnover ratio. 4. Compute the accounts receivable turnover in days. 5. Compute the inventory turnover ratio. 6. Compute the inventory turnover in days. Problem 16-44 Leverage Ratios Grammatico Company has just completed its third year of operations. The income statement is as follows: Sales Less: Cost of goods sold Gross profit margin Less: Selling and administrative expenses Operating income Less: Interest expense Income before taxes Less: Income taxes Net income Selected information from the balance sheet is as follows: Current liabilities Long-term liabilities Total liabilities Common stock Retained earnings Total equity $ 2,460,000 (1,410,000) $1,050,000 (710,000) $ 340,000 (140,000) $ 200,000 (68,000) $ 132,000 $1,000,000 1,500,000 $2,500,000 $4,000,000 750,000 $4,750,000 Required: Note: Round answers to two decimal places. 1. Compute the times-interest-earned ratio. 2. Compute the debt ratio. 3. Conceptual Connection: Assume that the lower quartile, median, and upper quartile values for debt and times-interest-earned ratios in Grammatico's industry are as follows: Times-interest-earned: Debt: 2.4, 5.4, 16.1 0.3, 0.8, 2.4 How does Grammatico compare with the industrial norms? Does it have too much debt?