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 $28. 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	$	1,130		$	1,310
Accounts receivable, net		10,900			8,000
Inventory		13,700			12,600
Prepaid expenses		620			580
Total current assets		26,350			22,490
Property and equipment:
Land		9,400			9,400
Buildings and equipment, net		45,572			42,116
Total property and equipment		54,972			51,516
Total assets	$	81,322		$	74,006
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,300		$	19,200
Accrued liabilities		1,010			880
Notes payable, short term		160			160
Total current liabilities		20,470			20,240
Long-term liabilities:
Bonds payable		9,900			9,900
Total liabilities		30,370			30,140
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		46,352			39,266
Total stockholders' equity		50,952			43,866
Total liabilities and stockholders' equity	$	81,322		$	74,006

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	69,000		$	66,000
Cost of goods sold		37,000			33,000
Gross margin		32,000			33,000
Selling and administrative expenses:
Selling expenses		11,100			11,000
Administrative expenses		7,100			6,300
Total selling and administrative expenses		18,200			17,300
Net operating income		13,800			15,700
Interest expense		990			990
Net income before taxes		12,810			14,710
Income taxes		5,124			5,884
Net income		7,686			8,826
Dividends to common stockholders		600			600
Net income added to retained earnings		7,086			8,226
Beginning retained earnings		39,266			31,040
Ending retained earnings	$	46,352		$	39,266

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

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Weller Corporation	(dollars in thousands)
Current Assets	This Year	Last Year
Cash	1,130.00	1,310.00
Accounts Receivable, net	10,900.00	8,000.00
Inventory	13,700.00	12,600.00
Prepaid Expenses	620.00	580.00
Total Current Assets	26,350.00	22,490.00
Current Liabilities	This Year	Last Year
Accounts payable	19,300.00	19,200.00
Accrued liabilities	1,010.00	880.00
Notes payable, short term	160.00	160.00
Total Current Liabilities	20,470.00	20,240.00
Total Current Assets	26,350.00	22,490.00
Less:
Inventory	13,700.00	12,600.00
Prepaid Expense	620.00	580.00
Quick Assets	12,030.00	9,310.00

Answer 1	This Year	Last Year
Working capital	5,880.00	2,250.00
Current Assets- Current Liabilities
Answer 2
Current Ratio	1.29	1.11
Current Assets/Current Liabilities
Answer 3
Acid Test Ratio	0.59	0.46
Quick Assets/Current Liabilities