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 500,000 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 $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	$	1,220		$	1,290
Accounts receivable, net		10,800			6,800
Inventory		12,400			12,100
Prepaid expenses		640			690
Total current assets		25,060			20,880
Property and equipment:
Land		9,400			9,400
Buildings and equipment, net		50,556			40,943
Total property and equipment		59,956			50,343
Total assets	$	85,016		$	71,223
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,600		$	19,000
Accrued liabilities		1,080			810
Notes payable, short term		290			290
Total current liabilities		19,970			20,100
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		28,670			28,800
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		51,846			37,923
Total stockholders' equity		56,346			42,423
Total liabilities and stockholders' equity	$	85,016		$	71,223

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	76,000		$	66,000
Cost of goods sold		34,000			36,000
Gross margin		42,000			30,000
Selling and administrative expenses:
Selling expenses		10,600			10,700
Administrative expenses		6,700			6,500
Total selling and administrative expenses		17,300			17,200
Net operating income		24,700			12,800
Interest expense		870			870
Net income before taxes		23,830			11,930
Income taxes		9,532			4,772
Net income		14,298			7,158
Dividends to common stockholders		375			375
Net income added to retained earnings		13,923			6,783
Beginning retained earnings		37,923			31,140
Ending retained earnings	$	51,846		$	37,923

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

1. Working capital (this year) = current assets - current liabilities

Working capital (this year) = $25,060 - $19,970

Working capital (this year) = $5,090 OR $5.09 (in thousands)

2. Current ratio (this year) = current assets / current liabilities

Current ratio (this year) = $25,060 / $19,970

Current ratio (this year) = 1.25

3. Acid test ratio (this year) = (current assets - inventory - prepaid expenses) / current liabilities

Acid test ratio (this year) = ($25,060 - $12,400 - $640) / $19,970

Acid test ratio (this year) = $12,020 / $19,970

Acid test ratio (this year) = 0.60