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This question consists of 2 independent sub-questions

1. 16 marks

Selected information from the financial statement of Intuition Company follows:

	2019	2018
Total assets	$1,000,000	$1,015,000
Total liabilities	737,700	809,000
Interest expense	59,000	40,500
Tax expense	48,400	50,500
Profit (NI)	193,600	202,000

Required:

(a).

10 marks

Compute debt to total assets ratio [TL/TA], and times interest earned ratio [EBIT/Interest expense]. The TL/TA ratio for 2019 is done for you. For each ratio, indicate whether it is better or worse when compared with prior year.

2019	2018	Comparison with Prior Year
TL/TA = 737,700/1,000,000 = 73.8%		Better or Worse?
TIE		Better or Worse?

TIE means Times Interest Earned

(b).

Comment on whether Intuitions overall solvency has improved or deteriorated in 2019.

6 marks

2.

8 marks

CA = Current assets; CL = Current liabilities, CR = Current ratio.

At the beginning of the year, CA = $54,000 and CR = 1.8. Assume the following transactions were completed during the year:

Purchased merchandise for $6,000 on short-term credit, and purchased a delivery truck for $10,000, paid $1,000 cash, and signed a two-year interest- bearing note for the balance. Compute CR using the ending balances. That is, calculate the ending balances for CA and CL and compute CR = CA(End)/CL(End)

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