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 this year was $24. 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	$	1,140		$	1,320
Accounts receivable, net		10,100			7,400
Inventory		12,200			12,200
Prepaid expenses		730			670
Total current assets		24,170			21,590
Property and equipment:
Land		9,000			9,000
Buildings and equipment, net		44,674			37,668
Total property and equipment		53,674			46,668
Total assets	$	77,844		$	68,258
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,500		$	19,000
Accrued liabilities		1,040			710
Notes payable, short term		190			190
Total current liabilities		19,730			19,900
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		28,430			28,600
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		44,814			35,058
Total stockholders' equity		49,414			39,658
Total liabilities and stockholders' equity	$	77,844		$	68,258

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	78,750		$	65,000
Cost of goods sold		43,920			40,000
Gross margin		34,830			25,000
Selling and administrative expenses:
Selling expenses		10,700			10,700
Administrative expenses		6,600			6,900
Total selling and administrative expenses		17,300			17,600
Net operating income		17,530			7,400
Interest expense		870			870
Net income before taxes		16,660			6,530
Income taxes		6,664			2,612
Net income		9,996			3,918
Dividends to common stockholders		240			300
Net income added to retained earnings		9,756			3,618
Beginning retained earnings		35,058			31,440
Ending retained earnings	$	44,814		$	35,058

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

Answer-1)- Accounts receivable turnover ratio = Sales on account /Average accounts receivable*

= $78750/( $7400+$10100)/2

=$78750/$8750

= 9 times

2)- Average collection period = 365 days/Accounts receivable turnover

= 365 days/9 times

= 40.56 days

3)- Inventory turnover ratio = Cost of goods sold/Average inventory

= $43920/ ($12200+$12200)/2

= $43920/$12200

= 3.6 times

4)- Average sale period = 365 days/Inventory turnover

= 365 days/ 3.6 times

=101.39 days

5)- Operating cycle = Average sale period + Average collection period

= 40.56 days+ 101.39 days

= 141.95 days

6)- Total asset turnover =Net sales/Average total assets

=$78750/($68258+$77844)/2

=$78750/$73051

=1.08 times