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 500,000 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 $27. 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 $ 1,150 $ 1,220 Accounts receivable, net 9,300 7,400 Inventory 13,600 11,700 Prepaid expenses 650 540 Total current assets 24,700 20,860 Property and equipment: Land 10,600 10,600 Buildings and equipment, net 45,990 38,475 Total property and equipment 56,590 49,075 Total assets $ 81,290 $ 69,935 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 18,900 $ 18,700 Accrued liabilities 970 870 Notes payable, short term 110 110 Total current liabilities 19,980 19,680 Long-term liabilities: Bonds payable 8,500 8,500 Total liabilities 28,480 28,180 Stockholders' equity: Common stock 500 500 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,500 4,500 Retained earnings 48,310 37,255 Total stockholders' equity 52,810 41,755 Total liabilities and stockholders' equity $ 81,290 $ 69,935

Explanation / Answer

Working capital =Total current assets -Total current liabilities = 24700-19980= 4720 Current ratio =Total current assets /Total current liabilities =24700/19980= 1.24 Acid-test ratio =(24700-13600-650)/19980= 0.52

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