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	$	1,140		$	1,410
Accounts receivable, net		9,500			6,700
Inventory		13,500			11,600
Prepaid expenses		660			540
Total current assets		24,800			20,250
Property and equipment:
Land		9,800			9,800
Buildings and equipment, net		48,570			39,980
Total property and equipment		58,370			49,780
Total assets	$	83,170		$	70,030
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,200		$	18,600
Accrued liabilities		1,060			890
Notes payable, short term		250			250
Total current liabilities		21,510			19,740
Long-term liabilities:
Bonds payable		9,500			9,500
Total liabilities		31,010			29,240
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		47,560			36,190
Total stockholders' equity		52,160			40,790
Total liabilities and stockholders' equity	$	83,170		$	70,030

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	72,000		$	66,000
Cost of goods sold		34,000			39,000
Gross margin		38,000			27,000
Selling and administrative expenses:
Selling expenses		10,600			10,100
Administrative expenses		6,500			6,700
Total selling and administrative expenses		17,100			16,800
Net operating income		20,900			10,200
Interest expense		950			950
Net income before taxes		19,950			9,250
Income taxes		7,980			3,700
Net income		11,970			5,550
Dividends to common stockholders		600			600
Net income added to retained earnings		11,370			4,950
Beginning retained earnings		36,190			31,240
Ending retained earnings	$	47,560		$	36,190

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.)

	1. Working capital 2. Current ratio 3. Acid-test ratio

Answer 1

Working capital = Current assets - Current Liabilities = 24,800 - 21,510 = 3290

Current Ratio = Current assets /Current liabilities = 24,800/21,510 = 1.15

Acid test ratio = Quick assets/Current liabilities = (24,800-13,500-660)/21,510 = 0.49