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 700,000 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 $21. 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	$	1,220		$	1,310
Accounts receivable, net		10,400			6,600
Inventory		12,100			12,500
Prepaid expenses		610			650
Total current assets		24,330			21,060
Property and equipment:
Land		9,900			9,900
Buildings and equipment, net		50,625			43,177
Total property and equipment		60,525			53,077
Total assets	$	84,855		$	74,137
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,300		$	19,400
Accrued liabilities		910			840
Notes payable, short term		290			290
Total current liabilities		20,500			20,530
Long-term liabilities:
Bonds payable		9,800			9,800
Total liabilities		30,300			30,330
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		49,855			39,107
Total stockholders' equity		54,555			43,807
Total liabilities and stockholders' equity	$	84,855		$	74,137

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	77,350		$	65,000
Cost of goods sold		40,590			33,000
Gross margin		36,760			32,000
Selling and administrative expenses:
Selling expenses		10,800			10,200
Administrative expenses		6,600			6,500
Total selling and administrative expenses		17,400			16,700
Net operating income		19,360			15,300
Interest expense		980			980
Net income before taxes		18,380			14,320
Income taxes		7,352			5,728
Net income		11,028			8,592
Dividends to common stockholders		280			525
Net income added to retained earnings		10,748			8,067
Beginning retained earnings		39,107			31,040
Ending retained earnings	$	49,855		$	39,107
1. Accounts receivable turnover 2. Avg. Collection Period

3. Inventory turnover

4. average sale period

5. Operating cycle

6. total asset turnover

Answer 1

Solution:

1. Accounts receivable turnover = Sales / Average Accounts receivable

= 77,350 / 8,500

= 9.1 Times

2. Average collection period = (Average Accounts receivable / Sales) x 365

= (8,500 / 77,350) x 365

= 40 Days

3. Inventory turnover = sales / Average Inventory

= 77,350 / 12,300

= 6.29 Times

4. average sale period = 365 / Inventory turnover

= 365 /6.29

= 58 Days

5. Operating cycle =  average sale period + Average collection period

= 40 + 58

= 98 Days

6. total asset turnover = sales / Average assets

= 77,350 / 79,496

= 0.97 Times