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 the year was $27. 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 $ 1,220 $ 1,250 Accounts receivable, net 9,000 6,600 Inventory 13,200 11,700 Prepaid expenses 640 500 Total current assets 24,060 20,050 Property and equipment: Land 9,100 9,100 Buildings and equipment, net 48,262 43,433 Total property and equipment 57,362 52,533 Total assets $ 81,422 $ 72,583 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 20,400 $ 19,400 Accrued liabilities 1,020 830 Notes payable, short term 140 140 Total current liabilities 21,560 20,370 Long-term liabilities: Bonds payable 8,700 8,700 Total liabilities 30,260 29,070 Stockholders' equity: Common stock 700 700 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,700 4,700 Retained earnings 46,462 38,813 Total stockholders' equity 51,162 43,513 Total liabilities and stockholders' equity $ 81,422 $ 72,583 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $ 70,980 $ 65,000 Cost of goods sold 38,595 34,000 Gross margin 32,385 31,000 Selling and administrative expenses: Selling expenses 11,100 10,600 Administrative expenses 7,200 6,200 Total selling and administrative expenses 18,300 16,800 Net operating income 14,085 14,200 Interest expense 870 870 Net income before taxes 13,215 13,330 Income taxes 5,286 5,332 Net income 7,929 7,998 Dividends to common stockholders 280 525 Net income added to retained earnings 7,649 7,473 Beginning retained earnings 38,813 31,340 Ending retained earnings $ 46,462 $ 38,813 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 you

Answer 1

1)Accounts receivable turnover = Net credit sales for current year /Average accounts receivable

         = 70980 /7800

         = 9.1 times

where,

Average accounts receivable =[Beginning accounts receivable +ending accounts receivable]/2

       =[6600+9000]/2

       = 7800

2) Average collection period = 365 /Accounts receivable turnover

                          = 365 /9.1

                             = 40.11 days

3) Inventory turnover =cost of goods sold for current year /Average inventory

                            = 38,595 / 12450

                           = 3.1 times

Where ,Average inventory = [Beginning inventory+ ending inventory]/2

           =[11700+13200]/2

         = 12450

4) Average sale period = 365 /Inventory turnover

                      = 365 /3.1

                    =   117.74 days

5) Operating cycle = Average collection period+ days in sales

                = 40.11 +117.74

               = 157.85 days

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

           = 70980 / 77002.5

            = .92 times

**Average total asset = [72583+81422]/2 = 77002.5