Question

1.) 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 $20. 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	$	1,250		$	1,340
Accounts receivable, net		10,800			6,800
Inventory		13,800			11,100
Prepaid expenses		640			500
Total current assets		26,490			19,740
Property and equipment:
Land		9,800			9,800
Buildings and equipment, net		46,691			40,254
Total property and equipment		56,491			50,054
Total assets	$	82,981		$	69,794
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,600		$	18,200
Accrued liabilities		1,000			870
Notes payable, short term		240			240
Total current liabilities		19,840			19,310
Long-term liabilities:
Bonds payable		8,600			8,600
Total liabilities		28,440			27,910
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		49,941			37,284
Total stockholders' equity		54,541			41,884
Total liabilities and stockholders' equity	$	82,981		$	69,794

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	76,560		$	65,000
Cost of goods sold		36,105			36,000
Gross margin		40,455			29,000
Selling and administrative expenses:
Selling expenses		11,500			10,900
Administrative expenses		6,600			6,500
Total selling and administrative expenses		18,100			17,400
Net operating income		22,355			11,600
Interest expense		860			860
Net income before taxes		21,495			10,740
Income taxes		8,598			4,296
Net income		12,897			6,444
Dividends to common stockholders		240			600
Net income added to retained earnings		12,657			5,844
Beginning retained earnings		37,284			31,440
Ending retained earnings	$	49,941		$	37,284

Required:

Compute the following financial data for this year:

1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

2. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

3. Inventory turnover. (Round your answer to 2 decimal places.)

4. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.)

6. Total asset turnover. (Round your answer to 2 decimal places.)

Answer 1

Answer- 1)- Accounts receivable turnover = Sales on account /Average accounts receivable

=$76560/ ($6800+$10800)/2

=$76560/$8800

= 8.7 times

2)- Average collection period = 41.95 days.

Explanation- Average collection period = 365 days/Accounts receivable turnover

= 365 days/8.7 times

= 41.95 days

3)-Inventory turnover = Cost of goods sold/Average inventory

= $36105/( $11100+$13800)/2

= $36105/$12450

= 2.9 times

4)- Average sale period =125.86 days.

Explanation- Average sale period = 365 days/Inventory turnover

= 365 days/ 2.9 times

= 125.86 days

5)- Operating cycle =109.1 days.

Explanation- Operating cycle = Average sale period + Average collection period

= 41.95 days+ 125.86 days

= 167.81 days

6)- Total assets turnover ratio = Turnover/Average assets

= $76560/($69794+$82981)/2

= $76560/$76387.5

= 1.00 times