Exercise 14-2 Financial Ratios for Assessing Liquidity [LO14-2]

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 companys common stock at the end of the year was $26. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,180		$	1,340
Accounts receivable, net		9,200			7,000
Inventory		13,300			11,300
Prepaid expenses		610			560
Total current assets		24,290			20,200
Property and equipment:
Land		10,900			10,900
Buildings and equipment, net		42,706			38,128
Total property and equipment		53,606			49,028
Total assets	$	77,896		$	69,228
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,000		$	18,500
Accrued liabilities		1,080			880
Notes payable, short term		140			140
Total current liabilities		20,220			19,520
Long-term liabilities:
Bonds payable		9,200			9,200
Total liabilities		29,420			28,720
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		43,876			35,908
Total stockholders' equity		48,476			40,508
Total liabilities and stockholders' equity	$	77,896		$	69,228

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	75,000		$	66,000
Cost of goods sold		42,000			39,000
Gross margin		33,000			27,000
Selling and administrative expenses:
Selling expenses		11,100			10,400
Administrative expenses		6,700			6,400
Total selling and administrative expenses		17,800			16,800
Net operating income		15,200			10,200
Interest expense		920			920
Net income before taxes		14,280			9,280
Income taxes		5,712			3,712
Net income		8,568			5,568
Dividends to common stockholders		600			600
Net income added to retained earnings		7,968			4,968
Beginning retained earnings		35,908			30,940
Ending retained earnings	$	43,876		$	35,908

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.)