Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $1.25 last year and $0.90 this year. The market value of the company’s common stock at the end of the year was $28. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,260		$	1,220
Accounts receivable, net		9,300			7,200
Inventory		13,800			11,300
Prepaid expenses		740			560
Total current assets		25,100			20,280
Property and equipment:
Land		10,900			10,900
Buildings and equipment, net		43,698			40,534
Total property and equipment		54,598			51,434
Total assets	$	79,698		$	71,714
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,500		$	19,100
Accrued liabilities		1,080			890
Notes payable, short term		200			200
Total current liabilities		19,780			20,190
Long-term liabilities:
Bonds payable		9,100			9,100
Total liabilities		28,880			29,290
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		46,218			37,824
Total stockholders' equity		50,818			42,424
Total liabilities and stockholders' equity	$	79,698		$	71,714

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	68,000		$	64,000
Cost of goods sold		34,000			34,000
Gross margin		34,000			30,000
Selling and administrative expenses:
Selling expenses		11,200			10,500
Administrative expenses		7,000			6,200
Total selling and administrative expenses		18,200			16,700
Net operating income		15,800			13,300
Interest expense		910			910
Net income before taxes		14,890			12,390
Income taxes		5,956			4,956
Net income		8,934			7,434
Dividends to common stockholders		540			750
Net income added to retained earnings		8,394			6,684
Beginning retained earnings		37,824			31,140
Ending retained earnings	$	46,218		$	37,824

Required:

Compute the following financial data and ratios for this year:

1.	Working capital. (Enter your answer in thousands)

       

2.	Current ratio. (Round your answer to 2 decimal places.)

       

3.	Acid-test ratio. (Round your answer to 2 decimal places.)

       

Answer 1

	(in $ Thousands)
1	Working Capital = Current Assets - Current Liabilities
		25100 - 19780
		$        5,320
2	Current ratio = Current Assets ÷ Current Liabilities
		25100 ÷ 19780
		1.27
3	Acid test ratio = (Cash + Accounts receivable, net) ÷ Current liabilities
		(1260+9300) ÷ 19780
		10560 ÷ 19780
		0.53