Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal 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 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 $1.00 last year and $0.65 this year. The market value of the company’s common stock at the end of the year was $22. 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	$	1,260		$	1,300
Accounts receivable, net		9,800			6,800
Inventory		13,800			12,100
Prepaid expenses		680			540
Total current assets		25,540			20,740
Property and equipment:
Land		9,900			9,900
Buildings and equipment, net		43,770			39,220
Total property and equipment		53,670			49,120
Total assets	$	79,210		$	69,860
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,200		$	18,800
Accrued liabilities		990			870
Notes payable, short term		270			270
Total current liabilities		21,460			19,940
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		31,460			29,940
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		43,150			35,320
Total stockholders' equity		47,750			39,920
Total liabilities and stockholders' equity	$	79,210		$	69,860

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	73,000		$	65,000
Cost of goods sold		41,000			39,000
Gross margin		32,000			26,000
Selling and administrative expenses:
Selling expenses		10,700			10,200
Administrative expenses		6,600			6,500
Total selling and administrative expenses		17,300			16,700
Net operating income		14,700			9,300
Interest expense		1,000			1,000
Net income before taxes		13,700			8,300
Income taxes		5,480			3,320
Net income		8,220			4,980
Dividends to common stockholders		390			600
Net income added to retained earnings		7,830			4,380
Beginning retained earnings		35,320			30,940
Ending retained earnings	$	43,150		$	35,320

Required:

Compute the following financial data and ratios for this year:

1.	Working capital. (Enter your 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

Working capital = Current assets - Current Liabilities = 25,540 - 21,460 = 4080
Current Ratio = current assets / current liabilities = 25540/21460 = 1.19
Acid test ratio = Quick assets / current liabilities = (25540-680-13800)/21460 = 0.52