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 this 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 $ 1,090 $ 1,250 accounts receivable, net 9,800 7,600 inventory 12,500 12,400 prepaid expenses 740 540 total current assets 24,130 21,790 property and equipment: land 10,400 10,400 buildings and equipment, net 41,594 35,332 total property and equipment 51,994 45,732 total assets $ 76,124 $ 67,522 liabilities and stockholders' equity current liabilities: accounts payable $ 20,100 $ 18,200 accrued liabilities 900 840 notes payable, short term 270 270 total current liabilities 21,270 19,310 long-term liabilities: bonds payable 8,800 8,800 total liabilities 30,070 28,110 stockholders' equity: common stock 600 600 additional paid-in capital 4,000 4,000 total paid-in capital 4,600 4,600 retained earnings 41,454 34,812 total stockholders' equity 46,054 39,412 total liabilities and stockholders' equity $ 76,124 $ 67,522 weller corporation comparative income statement and reconciliation (dollars in thousands) this year last year sales $ 67,000 $ 64,000 cost of goods sold 36,000 40,000 gross margin 31,000 24,000 selling and administrative expenses: selling expenses 11,000 10,500 administrative expenses 7,300 6,600 total selling and administrative expenses 18,300 17,100 net operating income 12,700 6,900 interest expense 880 880 net income before taxes 11,820 6,020 income taxes 4,728 2,408 net income 7,092 3,612 dividends to common stockholders 450

Answer 1

Investors expect a rate of return on their stock investments, which can come through dividends or capital gains. An example is buying a stock at a lower price and selling it at a higher one, resulting in a capital gain. For the self-check question, the firm's accounting profit would be $50,000.

Step-by-step explanation:

The rate of return on investment in a firm's stock can be received in two ways: through the payment of dividends or capital gains. Dividends are direct payments made to shareholders, representing a portion of the company's earnings. Capital gains, on the other hand, occur when an investor buys a share of stock at one price and sells it at a higher price, the difference representing the gain or increase in the stock's value over time.

For example, a financial investor might purchase a share of stock in a company like Wal-Mart for $45 and later sell that share for $60. This sale results in a capital gain of $15, which is the increase in the stock's value from the purchase to the sale. Understanding these concepts is crucial for investors as they evaluate the potential returns from investing in a company's stock.

Additionally, to answer the self-check question, if a firm had sales revenue of $1 million, spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be calculated as follows:

1. Total sales revenue: $1,000,000
2. Total costs (labor + capital + materials): $600,000 + $150,000 + $200,000 = $950,000
3. Accounting profit (sales revenue - total costs): $1,000,000 - $950,000 = $50,000

Answer 2

Weller Corporation's net income for this year is $7,092, and the dividend per share decreased from $0.75 to $0.40. The market value of the common stock is $24, with a total of 600,000 shares outstanding.

Step-by-step explanation:

Weller Corporation's financial statements provide insights into its performance and financial position. Net income for the year is calculated as the difference between gross margin and selling and administrative expenses, resulting in $7,092 (Net Income = Gross Margin - Selling and Administrative Expenses = $31,000 - $18,300).

The decrease in dividend per share is evident, falling from $0.75 to $0.40. The dividend payment is calculated as the product of the dividend per share and the total number of shares outstanding, yielding $240,000 (Dividends = Dividend per Share × Number of Shares = $0.40 × 600,000).

The market value of the common stock is determined by multiplying the market value per share by the total number of shares outstanding, resulting in $14,400,000 (Market Value = Market Value per Share × Number of Shares = $24 × 600,000).

These financial metrics, along with the comparative balance sheet, demonstrate Weller Corporation's financial health and performance over the two years.