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 860,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $21. All of the company’s sales are on account.
Weller Corporation Comparative Balance Sheet (dollars in thousands) |
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This Year | Last Year | |||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | 976 | $ | 1,920 | ||
Accounts receivable, net | 15,000 | 10,050 | ||||
Inventory | 10,000 | 8,440 | ||||
Prepaid expenses | 1,860 | 2,220 | ||||
Total current assets | 27,836 | 22,630 | ||||
Property and equipment: | ||||||
Land | 6,600 | 6,600 | ||||
Buildings and equipment, net | 19,800 | 19,600 | ||||
Total property and equipment | 26,400 | 26,200 | ||||
Total assets | $ | 54,236 | $ | 48,830 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 10,100 | $ | 8,600 | ||
Accrued liabilities | 720 | 1,000 | ||||
Notes payable, short term | 360 | 360 | ||||
Total current liabilities | 11,180 | 9,960 | ||||
Long-term liabilities: | ||||||
Bonds payable | 6,250 | 6,250 | ||||
Total liabilities | 17,430 | 16,210 | ||||
Stockholders' equity: | ||||||
Common stock | 860 | 860 | ||||
Additional paid-in capital | 4,500 | 4,500 | ||||
Total paid-in capital | 5,360 | 5,360 | ||||
Retained earnings | 31,446 | 27,260 | ||||
Total stockholders' equity | 36,806 | 32,620 | ||||
Total liabilities and stockholders' equity | $ | 54,236 | $ | 48,830 | ||
Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) |
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This Year | Last Year | |||||
Sales | $ | 85,000 | $ | 80,000 | ||
Cost of goods sold | 55,000 | 51,000 | ||||
Gross margin | 30,000 | 29,000 | ||||
Selling and administrative expenses: | ||||||
Selling expenses | 9,100 | 8,600 | ||||
Administrative expenses | 12,600 | 11,600 | ||||
Total selling and administrative expenses | 21,700 | 20,200 | ||||
Net operating income | 8,300 | 8,800 | ||||
Interest expense | 750 | 750 | ||||
Net income before taxes | 7,550 | 8,050 | ||||
Income taxes | 3,020 | 3,220 | ||||
Net income | 4,530 | 4,830 | ||||
Dividends to common stockholders | 344 | 344 | ||||
Net income added to retained earnings | 4,186 | 4,486 | ||||
Beginning retained earnings | 27,260 | 22,774 | ||||
Ending retained earnings | $ | 31,446 | $ | 27,260 | ||
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).) |
1) | Gross margin percentage | 35.3% | ||||||||
Working: | ||||||||||
Gross margin percentage | = | Gross Margin / Sales | ||||||||
= | $ 30,000 | / | $ 85,000 | |||||||
= | 35.3% | |||||||||
2) | Net margin percentage | 5.3% | ||||||||
Working: | ||||||||||
Net margin percentage | = | Net Income / Sales | ||||||||
= | $ 4,530 | / | $ 85,000 | |||||||
= | 5.3% | |||||||||
3) | ||||||||||
Return on Total Assets | = | Net Income/Average total assets | ||||||||
= | $ 4,530 | / | 51,533 | |||||||
= | 8.8% | |||||||||
Working: | ||||||||||
Average total assets | = | (54236+48830)/2 | = | 51,533 | ||||||
4) | ||||||||||
Return on Equity | = | Net Income/Average stockholder's Equity | ||||||||
= | $ 4,530 | / | 34,713 | |||||||
= | 13.05% | |||||||||
Working: | ||||||||||
Average total assets | = | (36806+32620)/2 | = | $ 34,713 | ||||||
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