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 500,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $27. 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	$	1,240		$	1,220
Accounts receivable, net		10,500			8,200
Inventory		12,000			12,300
Prepaid expenses		610			620
Total current assets		24,350			22,340
Property and equipment:
Land		10,500			10,500
Buildings and equipment, net		48,233			38,839
Total property and equipment		58,733			49,339
Total assets	$	83,083		$	71,679
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,800		$	19,400
Accrued liabilities		1,060			760
Notes payable, short term		220			220
Total current liabilities		20,080			20,380
Long-term liabilities:
Bonds payable		9,600			9,600
Total liabilities		29,680			29,980
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		48,903			37,199
Total stockholders' equity		53,403			41,699
Total liabilities and stockholders' equity	$	83,083		$	71,679

Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)

This Year

Last Year

  Sales

$

80,410

$

66,000

  Cost of goods sold

41,310

36,000

  Gross margin

39,100

30,000

  Selling and administrative expenses:

  Selling expenses

11,300

10,600

  Administrative expenses

7,000

6,800

  Total selling and administrative expenses

18,300

17,400

  Net operating income

20,800

12,600

  Interest expense

960

960

  Net income before taxes

19,840

11,640

  Income taxes

7,936

4,656

  Net income

11,904

6,984

  Dividends to common stockholders

200

625

  Net income added to retained earnings

11,704

6,359

  Beginning retained earnings

37,199

30,840

  Ending retained earnings

$

48,903

$

37,199

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

Solution: 4.

Average sale period = 365 / Inventory turnover

= 365 / 3.4

= 107.35 Days

working : Inventory turnover = Cost of goods sold / Average Inventory

= 41,310 / 12,150

= 3.40

Solution 5

Operating cycle =Inventory period + Accounts Receivable turnover

= 107.35 + 42.44

= 149.79 Days

working:

Inventory period = 365 / Inventory turnover

= 365 / 3.4

= 107.35

Accounts Receivable turnover = Credit Sales / Average accounts receivable

= 80,410 / 9,350

= 8.60

Accounts receivable period = 365 / Accounts Receivable turnover

= 365 / 8.60

= 42.44

Solution 6

Total assets turnover = Sales / Average total assets

= 80,410 / 77,381

= 1.04