Question: Refer to the data in Brief Exercise
Refer to the data in Brief Exercise 14–2 for Weller Corporation.
In Brief Exercise 14–2
Comparative financial statements for Weller Corporation for the fiscal year ending December 31 appear below. The company did not issue any new common or preferred stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.25. The market value of the company’s common stock at the end of the year was $18. All of the company’s sales are on account.
Required:
Compute the following financial ratios for long-term creditors for this year:
1. Times interest earned ratio.
2. Debt-to-equity ratio.
Transcribed Image Text:
Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash . $ 1,280 $ 1,560 Accounts receivable, net Inventory Prepaid expenses 12,300 9,700 9,100 8,200 2,100 1,800 Total current assets 25,080 20,960 Property and equipment: Land 6,000 6,000 Buildings and equipment, net 19,200 19,000 Total property and equipment 25,200 25,000 Total assets $50,280 $45,960 Liabilities and Stockholders' Equity Current liabilities: $ 9,500 $ 8,300 Accounts payable Accrued payables Notes payable, short term 600 700 300 300 Total current liabilities 10,400 9,300 Long-term liabilities: Bonds payable 5,000 5,000 Total liabilities 15,400 14,300 Stockholders' Equity: Preferred stock 2,000 2,000 Common stock 800 800 Additional paid-in capital 2,200 2,200 Total paid-in capital Retained earnings 5,000 5,000 29,880 26,660 Total stockholders' equity 34,880 $50,280 31,660 Total liabilities and stockholders' equity $45,960 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales . $79,000 $74,000 Cost of goods sold 52,000 48,000 Gross margin . 27,000 26,000 Selling and administrative expenses: Selling expenses . Administrative expenses 8,500 12,000 8,000 11,000 Total selling and administrative expenses.. 20,500 19,000 Net operating income Interest expense 6,500 7,000 600 600 Net income before taxes 5,900 6,400 Income taxes 2,360 2,560 Net income 3,540 3,840 Dividends to preferred stockholders 120 400 Net income remaining for common stockholders .. 3,420 3,440 Dividends to common stockholders 200 200 Net income added to retained earnings Retained earnings, beginning of year 3,220 3,240 26,660 23,420 Retained earnings, end of year . $29,880 $26,660
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