Comparative financial statements for Weller Corporation, a merchandising company

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 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, 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 $24. All of the company’s sales are on account.

Required:

Compute the following financial data and ratios for this year:

1. Working capital.

2. Current ratio. (Round your answer to 2 decimal places.)

3. Acid-test ratio. (Round your answer to 2 decimal places.)

Weller Corporation
Comparative Balance Sheet
(dollars in thousands) This Year Last Year Assets Current assets: Cash $ 1,230 $ 1,350 Accounts receivable, net 9,500 7,000 Inventory 12,200 11,000 Prepaid expenses 720 630 Total current assets 23,650 19,980 Property and equipment: Land 9,100 9,100 Buildings and equipment, net 45,658 40,664 Total property and equipment 54,758 49,764 Total assets $ 78,408 $ 69,744 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 19,200 $ 17,900 Accrued liabilities 930 730 Notes payable, short term 150 150 Total current liabilities 20,280 18,780 Long-term liabilities: Bonds payable 9,100 9,100 Total liabilities 29,380 27,880 Stockholders' equity: Common stock 600 600 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,600 4,600 Retained earnings 44,428 37,264 Total stockholders' equity 49,028 41,864 Total liabilities and stockholders' equity $ 78,408 $ 69,744

Explanation / Answer

Working capital (Current assets - Current liabilities) $23,650 - $20,280 = $3,370 Current ratio (Current assets / Current liabilities) $23,650/$20,280 = 1.17 : 1 Acid Test Ratio ((Total Current Assets - Inventory - Prepaid Expenses) / Current Liabilities) ($23,650-$12,200-$720) / $20,280 = 0.53

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