Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear...

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)
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)
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).)

Homework Answers

Answer #1
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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