(Compute current and quick ratios, LO 5) Following are the balance sheets for the years ended June 30, 2005 and 2006 for Seahorse Inc.:

Required:

a. Calculate the current ratio and the quick ratio on June 30, 2005 and 2006.

b. Assess the change in the liquidity position of Seahorse Inc.

c. Can you think of any circumstances where a significant increase in the quick ratio could be an indicator of a deteriorating liquidity position?

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Seahorse Inc. Balance Sheets 2006 Assets Current assets Current liabilities Cash and cash Accounts payable equivalents $ 38,000 $ 42,000 Accrued liabilities As of June 30, 2005 and 2006 2005 2006 2005 Liabilities and Shareholders' Equity $ 70,000 $ 69,500 12,000 19,000 Accounts receivable 95,000 58,000 Unearned revenue 10,000 12,000 Inventory 110,000 98,000 Prepaids 8,100 7,500 Current portion of long-term debt 45,000 60,000 Current assets 251,100 205,500 Current liabilities 137,000 160,500 Capital assets (net) 372,900 410,000 Long-term debt 110,000 155,000 Capital stock 165,000 125,000 Retained earnings 212,000 175,000 Total liabilities and Total assets $624,000 $615,500 shareholders' equity $624,000 $615,500