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 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 $28. 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	$	1,190		$	1,350
Accounts receivable, net		9,100			8,100
Inventory		12,500			12,200
Prepaid expenses		790			670
Total current assets		23,580			22,320
Property and equipment:
Land		9,600			9,600
Buildings and equipment, net		49,236			37,887
Total property and equipment		58,836			47,487
Total assets	$	82,416		$	69,807
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,100		$	17,900
Accrued liabilities		950			880
Notes payable, short term		270			270
Total current liabilities		21,320			19,050
Long-term liabilities:
Bonds payable		9,800			9,800
Total liabilities		31,120			28,850
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		46,796			36,457
Total stockholders' equity		51,296			40,957
Total liabilities and stockholders' equity	$	82,416		$	69,807

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	77,400		$	65,000
Cost of goods sold		40,755			37,000
Gross margin		36,645			28,000
Selling and administrative expenses:
Selling expenses		10,900			10,200
Administrative expenses		7,200			6,500
Total selling and administrative expenses		18,100			16,700
Net operating income		18,545			11,300
Interest expense		980			980
Net income before taxes		17,565			10,320
Income taxes		7,026			4,128
Net income		10,539			6,192
Dividends to common stockholders		200			375
Net income added to retained earnings		10,339			5,817
Beginning retained earnings		36,457			30,640
Ending retained earnings	$	46,796		$	36,457

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 yourintermediate 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

1.Accounts receivable turnover

Accounts receivable turnover = Sales / Average accounts receivables

= $77,400 / [($9,100 + $8,100)/2]

= $77,400 / $17,200

= 9.00 Times

2.Average collection period.

Average collection period = 365 Days / Accounts receivable turnover

= 365 Days / 9.00 Times

= 40.56 Times

3. Inventory turnover.

Inventory turnover = Cost of goods sold / Average Inventory

= $40,755 / [($12,500 + $12,200)/2]

= $40,755 / 12,350

= 3.30 Times

4. Average sale period.

Average sale period = 365 Days / Inventory turnover

= 365 Days / 3.30 Times

= 110.61 Days

5. Operating cycle

Operating cycle = Average collection period + Average sales period

= 40.56 Days + 110.61 Days

= 151.17 Days

6. Total asset turnover.

Total asset turnover = Sales / Average total assets

= $77,400 / [($82,416 + $69,807)/2]

= $77.400 / $76,111.50

= 1.02 Times