Question 3 The recent financial statements for the Royal Caribbean Company are given below: 2006 2005 Balance Sheet for the period ending June 30 Assets Current assets Cash Accounts receivables Inventories Prepaid expenses Total current assets Property and equipment Total assets $21,000 $160,000 $300,000 $9,000 $490,000 $810,000 $1,300,000 $24,000 $162,000 $315,000 $10,000 $511,000 $700,000 $1,211,000 Liabilities and shareholders equity Liabilities Current liabilities 10% bonds payable Total liabilities $200,000 $300,000 $500,000 $290,000 $275,000 $565,000 Shareholders equity Common stock $5 per share Retained earnings Total liabilities and shareholders equity $100,000 $700,000 $1,300,000 $150,000 $496,000 $1,211,000 Income statement for the year ended June 30 Sales Less cost of goods sold Gross margin Less operating expenses Net operating income Less interest expense Net income before taxes Less income taxes Net income $2,100,000 $1,260,000 $840,000 $660,000 $180,000 $30,000 $150,000 $45,000 $105,000 $1,900,000 $1,190,000 $710,000 $510,000 $200,000 $60,000 $140,000 $55,000 $85,000 Notes: Accounts balance at the beginning of 2005 financial year were: Accounts receivable $140 000. Inventory $260,000. All sales were credit. a. Calculate the following ratios for 2006 and 2005. i. Gross margin percentage ii. Net income percentage iii. Current ratio iv. Acid test ratio V. Inventory turn over vi. Debt to equity ratio vii. Interest cover (21 marks) b. Briefly comment on the company performance in the area of liquidity and profitability: (4 marks)