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 the 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	$	1,160		$	1,340
Accounts receivable, net		9,900			7,800
Inventory		13,000			10,700
Prepaid expenses		670			540
Total current assets		24,730			20,380
Property and equipment:
Land		10,400			10,400
Buildings and equipment, net		46,386			42,138
Total property and equipment		56,786			52,538
Total assets	$	81,516		$	72,918
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,200		$	18,800
Accrued liabilities		980			800
Notes payable, short term		180			180
Total current liabilities		21,360			19,780
Long-term liabilities:
Bonds payable		8,200			8,200
Total liabilities		29,560			27,980
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		47,256			40,238
Total stockholders' equity		51,956			44,938
Total liabilities and stockholders' equity	$	81,516		$	72,918

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	72,000		$	66,000
Cost of goods sold		41,000			32,000
Gross margin		31,000			34,000
Selling and administrative expenses:
Selling expenses		10,900			10,400
Administrative expenses		7,000			6,200
Total selling and administrative expenses		17,900			16,600
Net operating income		13,100			17,400
Interest expense		820			820
Net income before taxes		12,280			16,580
Income taxes		4,912			6,632
Net income		7,368			9,948
Dividends to common stockholders		350			350
Net income added to retained earnings		7,018			9,598
Beginning retained earnings		40,238			30,640
Ending retained earnings	$	47,256		$	40,238

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

1
	This Year	Last Year
Total current assets	24730	20380
Less: Total current liabilities	21360	19780
Working capital	3370	600
2
	This Year	Last Year
Total current assets	24730	20380
Divide by Total current liabilities	21360	19780
Current ratio	1.16	1.03
3
	This Year	Last Year
Cash	1160	1340
Accounts receivable, net	9900	7800
Total quick assets	11060	9140
Divide by Total current liabilities	21360	19780
Acid-test ratio	0.52	0.46