Financial information for Star Track Company is presented below:

Additional information:
1. Inventory at the beginning of 1995 was \(\$ 350,000\).
2. Receivables at the beginning of 1995 were \(\$ 80,000\).
3. Total assets at the beginning of 1995 were \(\$ 1,175,000\).
4. No common stock transactions occurred during 1995 or 1996 5. All sales were on account.
\section*{Instructions}

(a) Indicate, by using ratios, the change in liquidity and profitability of Star Track Company from 1995 to 1996. (Note: Not all profitability ratios can be computed nor can cash basis ratios be computed.)

(b) Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 1996, and (2) as of December 31, 1997, after giving effect to the situation. Net income for 1997 was \(\$ 125,000\). Total assets on December 31,1997 , were \(\$ 1,500,000\).

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STAR TRACK COMPANY Balance Sheet December 31 Assets Cash Short-term investments Receivables (net) Inventories Prepaid expenses Land Building and equipment (net) Liabilities and Stockholders' Equity Notes payable Accounts payable Accrued liabilities Bonds payable, due 1995 Common stock, $5 par Retained earnings 1996 1995 $ 50,000 $ 42,000 80,000 100,000 100,000 87,000 440,000 400,000 25,000 31,000 75,000 75,000 570,000 500,000 $1,340,000 $1,235,000 $ 125,000 $ 125,000 160,000 140,000 50,000 50,000 200,000 200,000 500,000 500,000 305,000 220,000 $1,340,000 $1,235,000