Financial information for Cao Inc. follows. 

Instructions 

a. Calculate the following ratios or relationships of Cao Inc. Assume that the ending account balances are representative unless the information provided indicates differently. 

1. Current ratio 

2. Inventory turnover 

3. Receivables turnover 

4. Average age of receivables (days sales outstanding) 

5. Average age of payables (days payables outstanding, based on cost of goods sold only) 

6. Earnings per share 

7. Profit margin on sales 

8. Rate of return on assets 

b. For each of the following transactions, indicate whether the transaction would improve, weaken, or have no effect on the current ratio of Cao Inc. at December 31, 2020. 

1. Writing off an uncollectible account receivable for $2,200 

2. Receiving a $20,000 down payment on services to be performed in 2020 

3. Paying $40,000 on notes payable (short-term) 

4. Collecting $23,000 on accounts receivable 

5. Purchasing equipment on account 

6. Giving an existing creditor a short-term note in settlement of an open account payable 

7. Recording an impairment loss on land

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Cao Inc. Statement of Financial Position December 31, 2020 Cash $ 45,000 Notes payable (short-term) $ 50,000 Accounts Receivable $110,000 Accounts payable 32,000 Less: Allowance 15,000 95,000 Accrued liabilities 5,000 Share capital (52,000 shares) Retained earnings Inventory 170,000 260,000 Prepaid insurance 8,000 241,000 Land 20,000 Building (net) 250,000 $588,000 $588,000 Income Statement For the Year Ended December 31, 2020 Sales $1,400,000 Cost of goods sold Inventory, Jan. 1, 2020 $200,000 Purchases 790,000 Cost of goods available for sale 990,000 Inventory, Dec. 31, 2020 170,000 Cost of goods sold 820,000 Gross profit on sales 580,000 Operating expenses 170,000 Income before income taxes 410,000 Income tax expense 125,000 Net income $ 285,000