Scanned by CamScanner Cases 175 ADC Plumbing and Heating Ltd. Statement of Income For the year ended December 31, 2012 (in $) Revenue 1,500,000 Cost of sales (750,000) Gross profit 750,000 Expenses: Distribution costs (350,000) Lease (25,000) Depreciation (30,000) Administrative expenses (200,000) Total expenses (605,000) Finance costs (30,000) Total (635,000) 115,000 Profit before taxes Income tax expense (40,000) 75,000 Profit for the year Albert and his accountant are considering making a few decisions that will affect the financial statements. Questions 1. If Albert were to use $80,000 of his cash from the business to pay off some of his trade and other payables, how will this alter his current ratio, quick ratio, and debt-to-total-assets ratio? 2. Albert is trying to keep his inventories at a minimum with only $10,000. However, another plumbing and heating contractor is going out of business and is selling his inventories, valued at $100,000, for only $60,000. (a) Albert's son, who is not presently an owner of the business, is considering buying the inventory for cash and, in return, would gain a part ownership in the business. How would this transaction modify the company's current ratio, quick ratio, and debt-to-total-assets ratio? (b) Instead of having his son become a shareholder of the business, Albert borrows a working capital loan from the bank for $60,000 at 10% interest. How would that decision affect the ratios identified in (a), as well as the times-interest-earned ratio? (c) If Albert were to borrow the $60,000 on a long-term basis, how would this decision alter the ratios identified in (a), as well as the times-interest-earned ratio? NEL Scanned by