Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 930,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $24. 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	$	4,038		$	4,140
Accounts receivable, net		15,700			10,400
Inventory		10,350			8,720
Prepaid expenses		1,930			2,360
Total current assets		32,018			25,620
Property and equipment:
Land		7,300			7,300
Buildings and equipment, net		20,500			20,300
Total property and equipment		27,800			27,600
Total assets	$	59,818		$	53,220
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,800		$	8,950
Accrued liabilities		860			1,350
Notes payable, short term		430			430
Total current liabilities		12,090			10,730
Long-term liabilities:
Bonds payable		8,750			8,750
Total liabilities		20,840			19,480
Stockholders' equity:
Common stock		930			930
Additional paid-in capital		4,850			4,850
Total paid-in capital		5,780			5,780
Retained earnings		33,198			27,960
Total stockholders' equity		38,978			33,740
Total liabilities and stockholders' equity	$	59,818		$	53,220

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	92,000		$	87,000
Cost of goods sold		58,500			54,500
Gross margin		33,500			32,500
Selling and administrative expenses:
Selling expenses		9,800			9,300
Administrative expenses		13,300			12,300
Total selling and administrative expenses		23,100			21,600
Net operating income		10,400			10,900
Interest expense		1,050			1,050
Net income before taxes		9,350			9,850
Income taxes		3,740			3,940
Net income		5,610			5,910
Dividends to common stockholders		372			744
Net income added to retained earnings		5,238			5,166
Beginning retained earnings		27,960			22,794
Ending retained earnings	$	33,198		$	27,960

Required:

Compute the following financial data for this year:

1. Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

2. Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

3. Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

4. Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Answer 1

Ans:

1) Gross Margin Percentage :-

= Gross Margin / Net Sales

= $33500 / $92000

= 36.4%

2) Net Profit Margin Percentage :-

= Net Profit Margin / Net Sale

= $5610 / $92000

= 6.1%

3) Return on Total Assets :-

= (Net Income+(Interest Expenses*(1-Tax Rate))) / Avg. Total Assets

= ($5610+($1050*(1- 0.40))) / $56519

= ($5610+$630) / $56519

= $6240 / $56519

= 11.0%

Avg. Total Assets = (Last Year Total assets + this Year Total Assets)/2

= ($59818+ $53220)/2

= $56519

4) Return on Equity :-

= Net Income / Avg. Total Shareholder's Equity

= $5610 / $36359

= 15.43%

Avg. Total Shareholder's Equity = (Last Year Total Shareholder's Equity + this Year Total Shareholder's Equity)/2

= ($38978 + $33740)/2

= $36359

Hope this helped ! Let me know in case of any queries.