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 $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 $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	$	1,100		$	1,380
Accounts receivable, net		9,300			7,100
Inventory		12,700			10,800
Prepaid expenses		780			690
Total current assets		23,880			19,970
Property and equipment:
Land		9,400			9,400
Buildings and equipment, net		44,496			39,138
Total property and equipment		53,896			48,538
Total assets	$	77,776		$	68,508
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,800		$	18,000
Accrued liabilities		1,090			830
Notes payable, short term		300			300
Total current liabilities		20,190			19,130
Long-term liabilities:
Bonds payable		8,200			8,200
Total liabilities		28,390			27,330
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		44,786			36,578
Total stockholders' equity		49,386			41,178
Total liabilities and stockholders' equity	$	77,776		$	68,508

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	70,000		$	64,000
Cost of goods sold		38,000			36,000
Gross margin		32,000			28,000
Selling and administrative expenses:
Selling expenses		10,500			11,000
Administrative expenses		6,600			6,200
Total selling and administrative expenses		17,100			17,200
Net operating income		14,900			10,800
Interest expense		820			820
Net income before taxes		14,080			9,980
Income taxes		5,632			3,992
Net income		8,448			5,988
Dividends to common stockholders		240			450
Net income added to retained earnings		8,208			5,538
Beginning retained earnings		36,578			31,040
Ending retained earnings	$	44,786		$	36,578

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 = 23,880 - 20,190 = 3,690
Current Ratio = current assets /current liabilities = 23,880/20,190 = 1.18
Acid test ratio = Quick assets / current liabilities = (23,880-12,700-780) / 20,190 = 0.52