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 700,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, 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 this year was $22. 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	$	1,140		$	1,400
Accounts receivable, net		9,300			7,400
Inventory		12,800			10,800
Prepaid expenses		740			600
Total current assets		23,980			20,200
Property and equipment:
Land		10,200			10,200
Buildings and equipment, net		44,446			41,793
Total property and equipment		54,646			51,993
Total assets	$	78,626		$	72,193
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,400		$	18,400
Accrued liabilities		1,060			710
Notes payable, short term		220			220
Total current liabilities		21,680			19,330
Long-term liabilities:
Bonds payable		8,200			8,200
Total liabilities		29,880			27,530
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		44,046			39,963
Total stockholders' equity		48,746			44,663
Total liabilities and stockholders' equity	$	78,626		$	72,193

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	66,000		$	66,000
Cost of goods sold		40,000			33,000
Gross margin		26,000			33,000
Selling and administrative expenses:
Selling expenses		10,700			10,300
Administrative expenses		6,800			6,800
Total selling and administrative expenses		17,500			17,100
Net operating income		8,500			15,900
Interest expense		820			820
Net income before taxes		7,680			15,080
Income taxes		3,072			6,032
Net income		4,608			9,048
Dividends to common stockholders		525			525
Net income added to retained earnings		4,083			8,523
Beginning retained earnings		39,963			31,440
Ending retained earnings	$	44,046		$	39,963

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

• Requirement 1 and 2

		This Year
A	Total Current Assets	$23,980
B	Total Current Liabilities	$21,680
C = A - B	Working Capital	$2,300	Answer [1]
D = A/B	Current Ratio	1.11	Answer [2]

• Requirement 3

A	Total Current Assets	$23,980
B	Prepaid Expenses	$740
C	Inventory	$12,800
D = A-B-C	Quick Assets	$10,440
E	Total Current Liabilities	$21,680
F = D/E	Acid Test Ratio	0.48	Answer [3]

• In case of any issue regarding correctness, please leave a comment.