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 $22. 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	$	1,270		$	1,330
Accounts receivable, net		9,900			7,800
Inventory		12,300			11,500
Prepaid expenses		720			640
Total current assets		24,190			21,270
Property and equipment:
Land		10,300			10,300
Buildings and equipment, net		51,839			37,212
Total property and equipment		62,139			47,512
Total assets	$	86,329		$	68,782
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,300		$	17,600
Accrued liabilities		990			740
Notes payable, short term		220			220
Total current liabilities		20,510			18,560
Long-term liabilities:
Bonds payable		9,300			9,300
Total liabilities		29,810			27,860
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		51,919			36,322
Total stockholders' equity		56,519			40,922
Total liabilities and stockholders' equity	$	86,329		$	68,782

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	80,535		$	65,000
Cost of goods sold		34,510			38,000
Gross margin		46,025			27,000
Selling and administrative expenses:
Selling expenses		11,400			10,800
Administrative expenses		7,300			6,800
Total selling and administrative expenses		18,700			17,600
Net operating income		27,325			9,400
Interest expense		930			930
Net income before taxes		26,395			8,470
Income taxes		10,558			3,388
Net income		15,837			5,082
Dividends to common stockholders		240			300
Net income added to retained earnings		15,597			4,782
Beginning retained earnings		36,322			31,540
Ending retained earnings	$	51,919		$	36,322

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 2. Average collection period days 3. Inventory turnover 4. Average sale period days 5. Operating cycle days 6. Total asset turnover

Answer 1

1.	Accounts receivables turnover = Credit sales / Average accounts receivables = 80535 / 8850	9.10
2.	Average collection period = Days in a year / Accounts receivables = 365 / 9.10	40.11	Days
3.	Inventory turnover = Cost of goods sold / Average inventory = 34510 / 11900	2.90
4.	Average sale period = Days in a year / Inventory turnover = 365 / 2.90	125.86	Days
5.	Operating cycle = Average collection period + Average sale period = 40.11 + 125.86	165.97	Days
6.	Total asset turnover = Sales / Average total assets = 80535 / 77556	1.04

Working note :
1) Average Accounts receivables = ( Beginning accounts receivables + Ending accounts receivables) / 2 = ( 7800 + 9900 ) / 2	8850
2) Average inventory = ( Beginning inventory + Ending inventory ) / 2 = ( 11500 + 12300 ) / 2	11900
3) Average total assets = ( Beginning total assets + Ending total assets ) / 2 = ( 68782 + 86329 ) / 2	77556