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 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 this year was $26. 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		$	1,250
Accounts receivable, net		10,800			8,100
Inventory		13,900			11,800
Prepaid expenses		740			530
Total current assets		26,710			21,680
Property and equipment:
Land		9,100			9,100
Buildings and equipment, net		49,989			41,870
Total property and equipment		59,089			50,970
Total assets	$	85,799		$	72,650
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,300		$	18,900
Accrued liabilities		900			840
Notes payable, short term		170			170
Total current liabilities		20,370			19,910
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		30,370			29,910
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		50,729			38,040
Total stockholders' equity		55,429			42,740
Total liabilities and stockholders' equity	$	85,799		$	72,650

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	84,105		$	65,000
Cost of goods sold		43,690			34,000
Gross margin		40,415			31,000
Selling and administrative expenses:
Selling expenses		11,300			10,000
Administrative expenses		6,500			7,000
Total selling and administrative expenses		17,800			17,000
Net operating income		22,615			14,000
Interest expense		1,000			1,000
Net income before taxes		21,615			13,000
Income taxes		8,646			5,200
Net income		12,969			7,800
Dividends to common stockholders		280			700
Net income added to retained earnings		12,689			7,100
Beginning retained earnings		38,040			30,940
Ending retained earnings	$	50,729		$	38,040

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

Ans:

1. Account Receivables Turnover = Net Credit Sales / Average Account receivables

= 84105/ ( 10800+8100) /2

= 8.9

2. Average Collection Period = 365 / Receivable turnover

= 365 /8.9 = 41.01 days=40 days(if rounded off)

3. Inventory turnover = COG's / average Inventory

= 43690 / (13900+11800) / 2 = 3.4

4. Average sale period = 365 / Inventory turnover

= 365 / 3.4 = 107.35 days=107 (If rounded off)

5. Operating Cycle=

Operating Cycle = Days' Sales of Inventory + Days Sales Outstanding

365 / purchases * Average inventory) + ( 365/ credit sales * average account receivable

365 / 43690 * 12850+ ( 365/ 84105 * 9450

= 107.35 days + 41.01 days = 148.36 days approx

6. total asset turnover = net sales / Average total assets

= 84105/ (85799+72650) / 2 = 84105/79224.5= 1.0616=1.06(if rounded off)