Question

Exercise 14-2 Financial Ratios for Assessing Liquidity (LO14-2] 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 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 $20. All of the company's sales are on account Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year $ 1,200 9,900 13,800 760 25,660 $ 1,300 6,600 12,500 580 20,980 9,900 45,570 55,470 $81,130 9,900 40,320 50,220 $71,200 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Long-term liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $17,800 $18,900 980 190 20,070 750 190 18,740 9,500 29,570 9,500 28,240 500 4,000 4,500 47,060 51,560 $81,130 500 4,000 4,500 38,460 42,960 $71,200

Answer 1

Working capital =Current assets - Current Liabilities = 25,660-20,070 = 5590

Current Ratio = Current assets/Current liabilities = 25,660/20,070 = 1.28

Acid test ratio = Quick assets/Current liabilities = (25,660-13,800-760)/20,070 = 0.55