Buchanan Company Has the Following Financial Data on December 31

Essay

Buchanan Company has the following financial data on December 31, 2017 and 2016:
$\begin{array}{lrr}&12 / 31 / 16 &12 / 31 / 17\\\text { Cash } & \$ 16,000 & \$ 21,000 \\\text { Accounts receivable } & 12,000 & 4,000 \\\text { Inventory } & 15,000 & 12,000 \\\text { Net plant and equipment } & 5,000 & 3,000 \\\text { Current liabilities } & 8,000 & 18,000 \\\text { Common stock } & 5,000 & 5,000 \\\text { Retained earnings } & 31,000 & 2,000\end{array}$

$\begin{array}{lr}\text { Buchanan 's } 2017 \text { income statement reported }\\\text { Revenue } & \$ 160,000 \\\text { Cost of goods sold } & 150,000 \\\text { Gross margin } & \$ 10,000 \\\text { Depreciation expense } & 2,000 \\\text { Net income } & \$ 8,000 \\\end{array}$


$\begin{array}{lr}\text { Buchanan's } 2017 \text { data from its statement of cash flows: }\\ \text { Cash flow from operations } & \$ 42,000 \\\text { Cash flow from investing activities } & 0 \\\text { Cash flow from financing activities, (all dividends paid) } & (22,000)\end{array}$
Required: Using appropriate ratios, comment on the change in Buchanan's solvency position and assess the probable cause of the change from 2016 to 2017.