Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal 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 $1.25 last year and $0.90 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 $ 1,260 $ 1,290 Accounts receivable, net 10,600 8,500 Inventory 13,400 11,100 Prepaid expenses 610 600 Total current assets 25,870 21,490 Property and equipment: Land 9,900 9,900 Buildings and equipment, net 40,422 36,596 Total property and equipment 50,322 46,496 Total assets $ 76,192 $ 67,986 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 18,900 $ 17,900 Accrued liabilities 1,020 750 Notes payable, short term 170 170 Total current liabilities 20,090 18,820 Long-term liabilities: Bonds payable 9,400 9,400 Total liabilities 29,490 28,220 Stockholders' equity: Common stock 600 600 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,600 4,600 Retained earnings 42,102 35,166 Total stockholders' equity 46,702 39,766 Total liabilities and stockholders' equity $ 76,192 $ 67,986 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $ 66,000 $ 65,000 Cost of goods sold 35,000 38,000 Gross margin 31,000 27,000 Selling and administrative expenses: Selling expenses 10,900 10,600 Administrative expenses 6,700 6,500 Total selling and administrative expenses 17,600 17,100 Net operating income 13,400 9,900 Interest expense 940 940 Net income before taxes 12,460 8,960 Income taxes 4,984 3,584 Net income 7,476 5,376 Dividends to common stockholders 540 750 Net income added to retained earnings 6,936 4,626 Beginning retained earnings 35,166 30,540 Ending retained earnings $ 42,102 $ 35,166 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.)

Explanation / Answer

Calculation of the folowing ratios for this year:

1. Working Capital = Current Assets - Current Liabilities = 25,870 - 20,090 = $5,780

2. Current Ratio = Current Assets / Current Liabilities = 25,870 / 20,090 = 1.28:1

3. Acid-test Ratio = Quick Assets / Current Liabilities = 11,860 / 20,090 = 0.59:1

(*) Quick Assets = Current Assets - Inventory - Prepaid Expenses

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