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.The market value of the company's common stock at the end of the year was $25. 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 $1,170 $1,310
Accounts receivable, net 10,900 8,400
Inventory 12,100 12,500
Prepaid expenses 710 650
Total current assets 24,880 22,860
Property and equipment:
Land 10,800 10,800
Buildings and equipment, net 44,326 38,018
Total property and equipment 55,126 48,818
Total assets $80,006 $71,678
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $18,900 $18,500
Accrued liabilities 1,020 880
Notes payable, short term 130 130
Total current liabilities 20,050 19,510
Long-term liabilities
Bonds payable 9,700 9,700
Total liabilities 29,750 29,210
Stockholders equity
Common stock 600 600
Additional paid-in capital 4,000 4,000
Total paid-in capital 4,600 4,600
Retained earnings 45,656 37,868
Total stockholders' equity 50,256 42,468
Total liabilities and stockholders' equity $80,006 $71,678


Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
Sales $71,000 $64,000
Cost of goods sold 39,000 35,000
Gross margin 32,000 29,000
Selling and administrative expenses:
Selling expenses 10,700 10,300
Administrative expenses 6,600 6,100
Total selling and administrative expenses 17,300 16,400
Net operating income 14,700 12,600
Interest expense 970 970
Net income before taxes 13,730 11,630
Income taxes 5,492 4652
Net income 8,238 6,978
Dividends to common stockholders 450 450
Net income added to retained earnings 7,788 6,528
Beginning retained earnings 37,868 31,340
Ending retained earnings $45,656 $37,868

Compute the following financial data and ratios for this year:
1. Working capital.
2. Current ratio.
3. Acid-test ratio.

Answer 1

For Weller Corporation, the working capital is $4,830 thousand, the current ratio is 1.24, and the acid-test ratio is 0.60 for the fiscal year ending December 31.

Step-by-step explanation:

To calculate the requested financial data and ratios for Weller Corporation for this year, we need to use the comparative balance sheet and income statement provided.

1. Working Capital

Working capital is defined as current assets minus current liabilities. Using the balance sheet values for this year:

• Current Assets = $24,880 thousand
• Current Liabilities = $20,050 thousand

Working Capital = Current Assets - Current Liabilities = $24,880 thousand - $20,050 thousand = $4,830 thousand.

2. Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. It is calculated by dividing current assets by current liabilities:

Current Ratio = Current Assets / Current Liabilities = $24,880 thousand / $20,050 thousand = 1.24.

3. Acid-test Ratio

The acid-test ratio, also known as the quick ratio, measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets are current assets less inventory and prepaid expenses:

• Quick Assets = Current Assets - Inventory - Prepaid Expenses
• Quick Assets = $24,880 thousand - $12,100 thousand - $710 thousand = $12,070 thousand

Acid-test Ratio = Quick Assets / Current Liabilities = $12,070 thousand / $20,050 thousand = 0.60