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 $0.40 this year. The market value of the company's common stock at the end of the year was $29. 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 $ 1,200 $ 1,380 Accounts receivable, net 9,700 8,300 Inventory 12,900 11,600 Prepaid expenses 620 660 Total current assets 24,420 21,940 Property and equipment: Land Buildings and equipment, net 10,700 42,930 10,700 36,120 Total property and equipment 53,630 46,820 Total assets $78,050 $68,760 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term $19,600 950 0 $ 18,500 740 260 20,550 19,500 Total current liabilities Long-term liabilities: Bonds payable 10,000 10,000 Total liabilities 30,550 29,500 Stockholders' equity: Common stock Additional paid-in capital 2,000 4,000 2,000 4,000 Total paid-in capital Retained earnings 6,000 41,500 6,000 33,260 Total stockholders' equity 47,500 39,260 Total liabilities and stockholders' equity $78,050 $68,760 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $71,000 $ 65,000 Cost of goods sold 38,000 41,000 Gross margin 33,000 24,000 Selling and administrative expenses: Selling expenses Administrative expenses 10,500 7,300 10,600 6,700 Total selling and administrative expenses 17,800 17,300 Net operating income Interest expense 15,200 1,000 6,700 1,000 Net income before taxes Income taxes 14,200 5,680 5,700 2,280 Net income Dividends to common stockholders 8,520 280 3,420 700 Net income added to retained earnings Beginning retained earnings 8,240 33,260 2,720 30,540 Ending retained earnings $41,500 $33,260

Answer 1

Ans. 1	Time interest earned = Net operating income / Interest expenses
	$15,200 / $1,000
	15.20	times
Ans. 2	Debt to equity ratio   =   Total liabilities / Total stockholder's equity
	$30,550 / $47,500
	0.64	times
Ans. 3	Equity multiplier   =   Average assets / Average stockholder's equity
	$73,405 / $43,380
	1.69	times
	*Average assets = (Beginning assets + Ending assets) / 2
	($68,760 + $78,050) / 2
	$73,405
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	($39,260 + $47,500) / 2
	$43,380