Waterloo Brewing Ltd. is a Canadian-owned brewery with its head office in Kitchener, Ontario. The company brews, sells, and markets its products under the Waterloo, Laker, and Red Cap brand names. The company also produces, sells, markets, and distributes Seagram Coolers across Canada. The information in Exhibits 7.24A was taken from the company’s 2021 annual financial statements.

Required 

a. Breaks down Waterloo’s inventory into two classifications. Which classifications of inventory do you believe should be used in determining the inventory turnover ratio? Why? 

b. Describe Waterloo Brewing’s inventory valuation policies in your own words. Specifically, explain what Waterloo Brewing includes in inventory cost, what cost formula(s) the company uses, and how it values its inventory on the statement of financial position. 

c. Calculate the inventory turnover ratio and days to sell inventory ratio for 2021 and 2020. Use the inventory values in 2021 and 2020 rather than the average inventory to calculate the ratios. Explain the amounts you selected from the financial statements to use in your calculation. 

d. Calculate the current and quick ratios and comment on them.

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WATERLOO BREWING LTD. Statements of Financial Position As at January 31, 2021 and January 31, 2020 ASSETS Current assets Accounts receivable Inventories Prepaid expenses Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Construction deposits TOTAL ASSETS Notes 6 7 8 9 10 January 31, 2021 $9,871,061 14,344,496 729,260 24,944,817 January 31, 2020 [recast - note 3.6] $ 4,976,226 10,482,912 787,448 16,246,586 46,630,107 32,808,678 26,936,861 27,840,996 15,002,826 15,184,333 1,949,074 1,050,425 90,518,868 76,884,432 $115,463,685 $93,131,018