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 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	$	1,180		$	1,290
Accounts receivable, net		10,100			8,400
Inventory		12,500			11,000
Prepaid expenses		780			630
Total current assets		24,560			21,320
Property and equipment:
Land		9,300			9,300
Buildings and equipment, net		49,652			40,716
Total property and equipment		58,952			50,016
Total assets	$	83,512		$	71,336
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,000		$	19,000
Accrued liabilities		1,060			720
Notes payable, short term		300			300
Total current liabilities		21,360			20,020
Long-term liabilities:
Bonds payable		9,900			9,900
Total liabilities		31,260			29,920
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		47,652			36,816
Total stockholders' equity		52,252			41,416
Total liabilities and stockholders' equity	$	83,512		$	71,336

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	81,400		$	65,000
Cost of goods sold		44,650			36,000
Gross margin		36,750			29,000
Selling and administrative expenses:
Selling expenses		10,500			10,400
Administrative expenses		6,800			6,400
Total selling and administrative expenses		17,300			16,800
Net operating income		19,450			12,200
Interest expense		990			990
Net income before taxes		18,460			11,210
Income taxes		7,384			4,484
Net income		11,076			6,726
Dividends to common stockholders		240			450
Net income added to retained earnings		10,836			6,276
Beginning retained earnings		36,816			30,540
Ending retained earnings	$	47,652		$	36,816

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	Accounts receivable turnover = Net credit sales / Average receivables
	$81,400 / $9,250
	8.80	times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	($8,400 + $10,100) / 2
	$9,250
Ans. 2	Average collection period = No. of days in year / Accounts receivables turnover ratio
	365 / 8.80
	41.48	days
Ans. 3	Inventory turnover = Cost of goods sold / Average Inventory
	$44,650 / $11,750
	3.80	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	($11,000 + $12,500) / 2
	$11,750
Ans. 4	Average sales period   = No. of days in year / Inventory turnover ratio
	365 / 3.80
	96.05	days
Ans. 5	Operating cycle = Average collection period + Average sales period
	41.48 + 96.05
	137.53	days
Ans. 6	Total assets turnover = Sales / Average operating assets
	$81,400 / $77,424
	1.05	times
	*Average assets = (Beginning assets + Ending assets) / 2
	($71,336 + $83,512) / 2
	$77,424
	*Ending balances of last year are considered as beginning balances for this year.