Question

This question is from chapter 15 of Managerial Accounting 16^th edition by Ray Garrison.

Exercise 15-2 Financial Ratios for Assessing Liquidity [LO15-2] 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 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 this year was $23. All of the company's sales are on account. Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses 1,150 1,230 600 12,500 700 Total current assets Property and equipment: 44:590 21,920 Land 10,500 48,096 10,500 Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: -58.596 48,128 $83,186 $70,048 Accounts payable 19,300 $18,300 800 Accrued liabilities 1,100 Notes payable, short term Total current liabilities Long-term liabilities: 690 Bonds payable Total liabilities Stockholders' equity: 30,390 29,090 Common stock 600 600 Additional paid-in capital Total paid-in capital Retained earningS Total stockholders equity Total liabilities and stockholders' equity 48,196 52,796 $83,186 4,600 36,358 40,958 $70,048 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales Cost of goods sold Gross margin Selling and administrative expenses: $72,000 $65,000 37,000 28,000 33,000 39,000 10,800 7,300 21,700 730 Selling expenses 10,000 Administrative expenses Total selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Dividends to common stockholders Net income added to retained earnings Beginning retained earnings Ending retained earnings 6,500 11, 500 530 8,292 838 36,358 30,640 $48,196 $36,358

Answer 1

Working capital = 3,900

Current Ratio = 1.19

Acid test ratio = 0.52

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