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 700,000 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 $26. 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 $ 1,280 $ 1,330 Accounts receivable, net 9,000 7,100 Inventory 13,400 12,000 Prepaid expenses 770 680 Total current assets 24,450 21,110 Property and equipment: Land 9,200 9,200 Buildings and equipment, net 43,678 36,939 Total property and equipment 52,878 46,139 Total assets $ 77,328 $ 67,249 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 19,500 $ 18,200 Accrued liabilities 1,050 740 Notes payable, short term 240 240 Total current liabilities 20,790 19,180 Long-term liabilities: Bonds payable 8,100 8,100 Total liabilities 28,890 27,280 Stockholders' equity: Common stock 700 700 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,700 4,700 Retained earnings 43,738 35,269 Total stockholders' equity 48,438 39,969 Total liabilities and stockholders' equity $ 77,328 $ 67,249

Explanation / Answer

Solution:

1) Working Capital for this year

Working capital is the amount of cash available to company for day to day working. In other words, working capital is the difference between current asset and current liabilities

Working Capital = Total Current Assets – Total Current Liabilities

= $24,450,000 - $20,790,000

= $3,660,000

2) Current Ratio for this year = Total Current Assets / Total Current Liabilities

= $24,450,000 / $20,790,000

= 1.18

3) Acid Test Ratio = Quick Assets / Current Liabilities

Quick Assets = Total Current Assets 24,450,000 – Inventories 13,400,000 – Prepaid Expenses 770,000 = $10,280,000

Acid Test Ratio = $10,280,000 / 20,790,000

= 0.49

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