Summer Corporation has just completed its comparative statements for the year ended December 31, 2010. At this point, certain analytical and interpretive procedures are to be undertaken. The completed statements (summarized) are as follows:

Required:
1. Compute appropriate ratios for 2010 and explain the meaning of each.
2. Respond to the following for 2010:
a. Evaluate the financial leverage. Explain its meaning using the computed amount(s).
b. Evaluate the profit margin amount and explain how a stockholder might use it.
c. Explain to a stockholder why the current ratio and the quick ratio are different. Do you observe any liquidity problems? Explain.
d. Assuming that credit terms are 1/10, n/30, do you perceive an unfavorable situation for the company related to credit sales?Explain.

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2010 2009 Income Statement Sales revenue Cost of goods sold Gross profit Operating expenses (including interest $453.000 250,000 203,000 $447,0001 241,000 206,000 on bonds) Pretax income Income tax Net income 167,000 168,000 36,000 0,800 38,000 11.400 25,200 26.600 Balance Sheet Cash Accounts receivable (net) Merchandise inventory Prepaid expenses Operational assets (net) $ 6,800 42.000 25,000 200 130,000 04,000 $3,900 29,000 18,000 100 20.000 171.000 Accounts payable Income taxes payable Bonds payable ( 10% interest rate) Common stock (par $5) Retained earnings $18,000 1,000 50,000 100,000 2,000 171,000 $ 17,000 1,000 70,0002 100,0003 16,0004 04.000 Credit sales totaled 40 percent. $20,000 of bonds were issued on 1/2/2010. Assum e the tax rate is 30%. 3The market price of the stock at the end of 2010 was $I8 per share. Dn 2010, the company declared and paid a cash dividend of $9,000