Case 1. Link Back to Chapter 4 (Classified Balance Sheet. Current Ratio. Debt Ratio). David Wheelis owns Heights Pharmacy, which has prospered during its second year of operation. In deciding whether to open another pharmacy in the area. Wheelis has prepared the current financial statements of the business (on page 209). Wheelis read in an industry trade journal that a successful pharmacy meets all of these criteria:

a. Gross profit percentage is at least 60%.

b. Current ratio is at least 2.0.

c. Debt ratio is no higher than 0.50.

d. Inventory turnover rate is at least 3.40. (Heights Pharmacy's inventory one year ago, at December 31, 20X0. was $19.200.) Basing his opinion on the entity's financial statement data. Wheelis believes the business meets all four criteria. He intends to go ahead with the expansion plan and asks your advice on preparing the pharmacy's financial statements in accordance with generally accepted accounting principles. When you point out that the statements are not properly prepared. he assures you that all amounts are correct. However, he admits that some items may be listed in the wrong place. Required 1. Compute the four ratios based on the Heights Pharmacy financial statements prepared by Wheelis. Does the business appear to be ready for expansion? 2. Prepare a correct multi-step income statement, a correct statement of owner's equity, and a correct classified balance sheet in report format. 3. On the basis of the corrected financial statements, compute correct measures of the four ratios listed in the trade journal. 4. Make a recommendation about whether Wheelis should undertake the expansion.