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 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 $30. 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	$	1,190		$	1,250
Accounts receivable, net		9,700			8,200
Inventory		13,900			12,100
Prepaid expenses		680			650
Total current assets		25,470			22,200
Property and equipment:
Land		10,500			10,500
Buildings and equipment, net		42,630			40,370
Total property and equipment		53,130			50,870
Total assets	$	78,600		$	73,070
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,200		$	18,400
Accrued liabilities		970			890
Notes payable, short term		190			190
Total current liabilities		20,360			19,480
Long-term liabilities:
Bonds payable		9,500			9,500
Total liabilities		29,860			28,980
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		44,140			39,490
Total stockholders' equity		48,740			44,090
Total liabilities and stockholders' equity	$	78,600		$	73,070

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	67,000		$	65,000
Cost of goods sold		40,000			32,000
Gross margin		27,000			33,000
Selling and administrative expenses:
Selling expenses		11,100			10,900
Administrative expenses		6,700			6,400
Total selling and administrative expenses		17,800			17,300
Net operating income		9,200			15,700
Interest expense		950			950
Net income before taxes		8,250			14,750
Income taxes		3,300			5,900
Net income		4,950			8,850
Dividends to common stockholders		300			300
Net income added to retained earnings		4,650			8,550
Beginning retained earnings		39,490			30,940
Ending retained earnings	$	44,140		$	39,490

Required:

Compute the following financial data and ratios for this year:

1. Working capital. (Enter 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

Ans. 1	Working capital =     Total current assets - Total current liabilities
		$25,470 - $20,360
		$5,110
Ans. 2	Current ratio   =   Total current assets / Total current liabilities
		$25,470 / $20,360
		1.25 : 1
Ans. 3	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
		($25,470 - $13,900 - $680) / $20,360
		$10,890 / $20,360
		0.53 : 1