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 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 $25. 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	$	1,090		$	1,210
Accounts receivable, net		10,200			7,400
Inventory		13,800			12,200
Prepaid expenses		750			620
Total current assets		25,840			21,430
Property and equipment:
Land		9,600			9,600
Buildings and equipment, net		43,706			37,508
Total property and equipment		53,306			47,108
Total assets	$	79,146		$	68,538
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,300		$	17,800
Accrued liabilities		1,060			830
Notes payable, short term		190			190
Total current liabilities		20,550			18,820
Long-term liabilities:
Bonds payable		9,700			9,700
Total liabilities		30,250			28,520
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		44,396			35,518
Total stockholders' equity		48,896			40,018
Total liabilities and stockholders' equity	$	79,146		$	68,538

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	79,200		$	65,000
Cost of goods sold		45,500			38,000
Gross margin		33,700			27,000
Selling and administrative expenses:
Selling expenses		10,800			10,900
Administrative expenses		6,800			6,500
Total selling and administrative expenses		17,600			17,400
Net operating income		16,100			9,600
Interest expense		970			970
Net income before taxes		15,130			8,630
Income taxes		6,052			3,452
Net income		9,078			5,178
Dividends to common stockholders		200			500
Net income added to retained earnings		8,878			4,678
Beginning retained earnings		35,518			30,840
Ending retained earnings	$	44,396		$	35,518

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

Answer of Part 1:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($7,400 + $10,200) /2
Average Accounts Receivable = $8,800

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $79,200 / $8,800
Accounts Receivable Turnover = 9 times

Answer of Part 2:

Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 / 9
Average Collection Period = 40.56 days

Answer of Part 3:

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($12,200 + $13,800) /2
Average Inventory = $13,000

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $45,500 / $13,000
Inventory Turnover = 3.5 times

Answer of Part 4:

Average Sales Period = 365 days / Inventory Turnover
Average Sales Period = 365 / 3.5
Average Sales Period = 104.29 days