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 $24. 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		$	1,270
Accounts receivable, net		9,700			7,500
Inventory		13,500			11,200
Prepaid expenses		660			670
Total current assets		25,080			20,640
Property and equipment:
Land		9,100			9,100
Buildings and equipment, net		45,906			39,678
Total property and equipment		55,006			48,778
Total assets	$	80,086		$	69,418
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,700		$	18,900
Accrued liabilities		980			840
Notes payable, short term		130			130
Total current liabilities		19,810			19,870
Long-term liabilities:
Bonds payable		8,200			8,200
Total liabilities		28,010			28,070
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		47,476			36,748
Total stockholders' equity		52,076			41,348
Total liabilities and stockholders' equity	$	80,086		$	69,418

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	75,000		$	65,000
Cost of goods sold		38,000			37,000
Gross margin		37,000			28,000
Selling and administrative expenses:
Selling expenses		11,300			10,100
Administrative expenses		6,500			6,400
Total selling and administrative expenses		17,800			16,500
Net operating income		19,200			11,500
Interest expense		820			820
Net income before taxes		18,380			10,680
Income taxes		7,352			4,272
Net income		11,028			6,408
Dividends to common stockholders		300			300
Net income added to retained earnings		10,728			6,108
Beginning retained earnings		36,748			30,640
Ending retained earnings	$	47,476		$	36,748

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.)

Brewer_8e_Rechecks_2020_01_28

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Question 2 of 11 Total2 of 11

Answer 1

1
Total current assets	25080
Less: Total current liabilities	19810
Working capital	5270
2
Total current assets	25080
Divide by Total current liabilities	19810
Current ratio	1.27
3
Total quick assets	10920	=1220+9700
Divide by Total current liabilities	19810
Acid-test ratio	0.55