Cardigan Corp. (Cardigan) and Huskisson Ltd. (Huskisson) are small distribution companies. They are identical in every respect€”amount of sales, quantity of inventory sold, number of employees. Everything is the same except that Cardigan uses FIFO as its cost formula and Huskisson uses average cost.

You also learn that on December 31, 2017, the balances in inventory for the two companies were

Required:
a. Calculate the following ratios for each of the companies:
i. Current ratio
ii. Quick ratio
iii. Inventory turnover ratio
iv. Average number of days inventory on hand
v. Gross margin percentage
vi. Profit margin percentage
b. Which company has the strongest liquidity position?
c. Which company is the most profitable?
d. Which company manages its inventory most effectively?
e. The two companies€™ bankers lend money based on the amount of accounts receivable and inventory on hand. Which company will be able to obtain the largest loan?
From the banks€™ point of view, is the company that receives the largest loan the best credit risk?Explain.

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Balance Shoets as of December 31, 2018 Cardigan FIFO) Huskisson Average cost) Assets Cash Accounts receivable Inventory Other current assets Total current assets Property, plant, and equipment (net) Total assets Liabilities and Shareholders' oquity Bank loarn Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Capital stock Retained eamings Total liabilities and shareholders' equity Revenue Cost of sales Gross margin Other expenses Net income S 142,200 378,000 1,582,500 $ 142,200 378,000 1,176,750 63,000 1,759,950 2,260,500 $4,020,450 63,D00 2,165,700 2,260,500 $4,426,200 S 225,000 1,132,500 97500 1,455,000 393,000 75,000 1,923,000 300,000 2,203,200 S4,426,200 $5,310,000 2,548,800 2,761,200 2,175,000 $ 586,200 225,000 1,132,500 1,455,000 393,000 75,000 1,923,000 300,000 1797 450 $5,310,000 2,867,400 2,442,600 2175,000 S 267,600 Ending Inventory Balances on December 31, 2017 Cardigan RFO $1,432,650 Huskisson (average Inventory $1,345,500 Ending Inventory Balances on December 31,2017 Cardigan FIFO $1,432,650 Huskisson faverage cost $1,345,500 Inventory