(Analyze financial information, LO 4, 7) Below are the income statements and balance sheets for Penticton Inc. (Penticton) for 2005 and 2006:

Required:

a. Calculate the following for Penticton for 2005 and 2006:
i. working capital ii. current ratio ili. debt-to-equity ratio iv. gross margin v. gross margin percentage

b. Explain why the amounts you calculated in

(a) changed from 2005 to 2006.

c. Comment on Penticton’s liquidity position on December 31, 2006. As a prospective lender of money to Penticton, what concerns would you have about its current liquidity position?

d. What could Penticton’s management do to improve liquidity?

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Penticton Inc. Balance Sheets As of December 31 2006 2005 2006 2005 Assets Cash $ Liabilities and shareholders' equity 5,000 $10,000 Bank loan $ 100,000 $ 75,000 Accounts Accounts payable 200,000 150,000 receivable 205,000 -175,000 Goods to be provided Inventory 264,200 225,000 to customers 42,000 35,000 Equipment, Long-term debt 250,000 150,000 furniture and fixtures (net of accumulated amortization) Other non- Shareholders' equity 720,000 680,000 Capital stock Retained earnings 260,000 250,000 417,200 380,000 current assets. 75,000 100,000 Total liabilities and Total assets $1,269,200 $1,190,000 shareholders' equity $1,269,200 $1,190,000