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 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 $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $18. All of the company’s sales are on account.
Weller Corporation Comparative Balance Sheet (dollars in thousands) |
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This Year | Last Year | |||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | 1,280 | $ | 1,560 | ||
Accounts receivable, net | 12,300 | 9,100 | ||||
Inventory | 9,700 | 8,200 | ||||
Prepaid expenses | 1,800 | 2,100 | ||||
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: | ||||||
Accounts payable | $ | 9,500 | $ | 8,300 | ||
Accrued liabilities | 600 | 700 | ||||
Notes payable, short term | 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: | ||||||
Common stock | 800 | 800 | ||||
Additional paid-in capital | 4,200 | 4,200 | ||||
Total paid-in capital | 5,000 | 5,000 | ||||
Retained earnings | 29,880 | 26,660 | ||||
Total stockholders' equity | 34,880 | 31,660 | ||||
Total liabilities and stockholders' equity | $ | 50,280 | $ | 45,960 | ||
Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) |
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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 | 8,500 | 8,000 | ||||
Administrative expenses | 12,000 | 11,000 | ||||
Total selling and administrative expenses | 20,500 | 19,000 | ||||
Net operating income | 6,500 | 7,000 | ||||
Interest expense | 600 | 600 | ||||
Net income before taxes | 5,900 | 6,400 | ||||
Income taxes | 2,360 | 2,560 | ||||
Net income | 3,540 | 3,840 | ||||
Dividends to common stockholders | 320 | 600 | ||||
Net income added to retained earnings | 3,220 | 3,240 | ||||
Beginning retained earnings | 26,660 | 23,420 | ||||
Ending retained earnings | $ | 29,880 | $ | 26,660 | ||
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.)
1) Accounts receivable turnover = credit sales/average Accounts receivable
AVERAGE Accounts receivable = opening+ending/2
=$9100+$12300/2 = $10700
Accounts receivable turnover = $79000/$10700 = 7.38times
2) average collection period = 365days/Accounts receivable turnover
= 365days/7.38 = 49.45 days
3) inventory turnover = cost of goods sold/average inventory
Average inventory = $8200+$9700/2= $8950
inventory turnover = $52000/$8950 = 5.81 times
4) average Sales period = 365days/inventory turnover
= 365days/5.81 = 62 .82
5) operating cycle = average collection period + average Sales period = 49.45 days + 62.82 days = 112.27 days
6) total assets turnover = turnover/average assets
average assets. = $45960+$50280/2 = $48120
= $79000/$48120 = 1.64
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