Problem 7 (15%) A. The following ratios were calculated for two firms, one of which is known to have much more of its current assets tied up in inventory. Both firms have an equal amount of current liabilities. Firm 1 0.93x Current ratio Quick Ratio (Acid-Test) Firm 2 1.24x 0.91x 0.84x A friend believes that Firm 1 carries much more inventory because "its Quick Ratio is lower than Firm 2's." In the space below, suggest an alternative way to analyze the above data that is more likely to accurately reveal the firm with more of its current assets tied up in inventory. B. Information for two retailers for 2019 appears below: Retailer A 39.0 Retailer B 50.5 Days' purchases in accounts payable Retailer A's net sales and merchandise purchases during 2019 were $91,250 million and $54,020 million, respectively. IF Retailer A had taken as long as Retailer B to pay its accounts payable, how much less working capital would the firm have had to carry during 2019? Show calculations! Pro-forma reduction in working capital for Retailer A: $ million C. Assume that a local citizen's group, the Committee to Eliminate Corporate Welfare, accused the Smithson Corporation of "cheating the government by adopting an inventory method different from its actual flow of merchandise solely to save big on its income tax bill." 1. Which inventory method was Smithson most likely using? 2. What argument other than its right to legally minimize income taxes could Smithson set forth in support of the inventory method it uses for financial-reporting purposes? Problem 7 (15%) A. The following ratios were calculated for two firms, one of which is known to have much more of its current assets tied up in inventory. Both firms have an equal amount of current liabilities. Firm 1 0.93x Current ratio Quick Ratio (Acid-Test) Firm 2 1.24x 0.91x 0.84x A friend believes that Firm 1 carries much more inventory because "its Quick Ratio is lower than Firm 2's." In the space below, suggest an alternative way to analyze the above data that is more likely to accurately reveal the firm with more of its current assets tied up in inventory. B. Information for two retailers for 2019 appears below: Retailer A 39.0 Retailer B 50.5 Days' purchases in accounts payable Retailer A's net sales and merchandise purchases during 2019 were $91,250 million and $54,020 million, respectively. IF Retailer A had taken as long as Retailer B to pay its accounts payable, how much less working capital would the firm have had to carry during 2019? Show calculations! Pro-forma reduction in working capital for Retailer A: $ million C. Assume that a local citizen's group, the Committee to Eliminate Corporate Welfare, accused the Smithson Corporation of "cheating the government by adopting an inventory method different from its actual flow of merchandise solely to save big on its income tax bill." 1. Which inventory method was Smithson most likely using? 2. What argument other than its right to legally minimize income taxes could Smithson set forth in support of the inventory method it uses for financial-reporting purposes