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Warford Corporation was formed 5 years ago through a public subscription of common stock. Lucinda Street, who owns 15% of the common stock, was one of the organizers of Warford and is its current president. The company has been successful but is currently experiencing a shortage of funds. On June 10, Street approached the Bell National Bank, asking for a 12-month extension on two $30,000 notes, which are due on June 30, Year 5, and September 30, Year 5. Another note of $7,000 is due on December 31, Year 5, but she expects no difficulty in paying this note on its due date. Street explained that Warford's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The Commercial Loan Officer of Bell National Bank requested financial reports for the last 2 fiscal years. These reports are reproduced below. Warford Corporation Income Statement For the Fiscal Years Ended March 31 Year 4 Year 5 Sales $2,700,000 $3,000,000 Cost of goods sold* 1,720,000 1,902,500 Gross margin $ 980,000 $1,097,500 Operating expenses 780,000 845,000 Net income before taxes $ 200,000 $ 252,500 Income taxes (40%) 80,000 101,000 Income after taxes $ 120,000 $ 151,500 *Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, Year 4 and Year 5, respectively, are included in cost of goods sold. Warford Corporation Statement of Financial Position March 31 Year 4 Year 5 Assets: Cash $ 12,500 $ 16,400 Notes receivable 104,000 112,000 Accounts receivable (net) 68,500 81,600 Inventories (at cost) 50,000 80,000 'lant and equipment (net of depreciation) 646,000 680,000 Total assets** $881,000 $970,000 Liabilities and Owners' Equity: Accounts payable $ 72,000 $ 69,000 Notes payable 54,500 67,000 Accrued liabilities 6,000 9,000 Common stock (60,000 shares, $10 par) 600,000 600,000 Retained earnings*** 148,500 225,000 Total liabilities and owners' equity $881,000 $970,000 *Total assets at the end of Year 4 was the same as at the end of Year 3. **Cash dividends were paid at the rate of $1.00 per share in fiscal Year 4 and $1.25 per share in fiscal Year 5. A. Calculate the following items for Warford Corporation: a. Current ratio for fiscal Year 4 and Year 5. b. Acid-test (quick) ratio for fiscal Year 4 and Year 5. c. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal Year 4 to Year 5

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