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 the year was $29. 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	$	1,100		$	1,240
Accounts receivable, net		9,600			6,700
Inventory		13,800			12,000
Prepaid expenses		720			580
Total current assets		25,220			20,520
Property and equipment:
Land		10,600			10,600
Buildings and equipment, net		44,488			40,006
Total property and equipment		55,088			50,606
Total assets	$	80,308		$	71,126
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,900		$	18,800
Accrued liabilities		960			720
Notes payable, short term		180			180
Total current liabilities		21,040			19,700
Long-term liabilities:
Bonds payable		9,400			9,400
Total liabilities		30,440			29,100
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		45,268			37,426
Total stockholders' equity		49,868			42,026
Total liabilities and stockholders' equity	$	80,308		$	71,126

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	74,980		$	65,000
Cost of goods sold		42,570			36,000
Gross margin		32,410			29,000
Selling and administrative expenses:
Selling expenses		10,600			10,800
Administrative expenses		7,400			6,200
Total selling and administrative expenses		18,000			17,000
Net operating income		14,410			12,000
Interest expense		940			940
Net income before taxes		13,470			11,060
Income taxes		5,388			4,424
Net income		8,082			6,636
Dividends to common stockholders		240			450
Net income added to retained earnings		7,842			6,186
Beginning retained earnings		37,426			31,240
Ending retained earnings	$	45,268		$	37,426

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

1) Accounts receivable turnover = sales/average Accounts receivable

= $74980/($9600+6700)/2

= $74980/$8150 = 9.18 Times

2) average collection period = 365/Accounts receivable turnover

= $365/9.18 = 39.76 days

3) inventory turnover = cost of goods sold/average inventory

= $42570/($13800+$12000)/2

= $42570/$12900 = 3.30times

4) average sales Period = 365days/inventory turnover

= 365/3.30

= 110.60 days

5) operating cycle = average sales Period + average collection period

= 110.60+39.76

= 150 .36 days

6) total assets turnover = turnover/average assets

= $74980/($80308+$71126)/2

= $74980/$75717

= 0.99 times

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