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 $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	$	1,170		$	1,320
Accounts receivable, net		11,000			6,800
Inventory		12,800			11,900
Prepaid expenses		800			520
Total current assets		25,770			20,540
Property and equipment:
Land		9,300			9,300
Buildings and equipment, net		46,423			42,536
Total property and equipment		55,723			51,836
Total assets	$	81,493		$	72,376
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,100		$	18,800
Accrued liabilities		920			870
Notes payable, short term		180			180
Total current liabilities		21,200			19,850
Long-term liabilities:
Bonds payable		8,900			8,900
Total liabilities		30,100			28,750
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		46,793			39,026
Total stockholders' equity		51,393			43,626
Total liabilities and stockholders' equity	$	81,493		$	72,376

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	77,430		$	65,000
Cost of goods sold		45,695			32,000
Gross margin		31,735			33,000
Selling and administrative expenses:
Selling expenses		10,800			10,900
Administrative expenses		6,700			6,900
Total selling and administrative expenses		17,500			17,800
Net operating income		14,235			15,200
Interest expense		890			890
Net income before taxes		13,345			14,310
Income taxes		5,338			5,724
Net income		8,007			8,586
Dividends to common stockholders		240			600
Net income added to retained earnings		7,767			7,986
Beginning retained earnings		39,026			31,040
Ending retained earnings	$	46,793		$	39,026

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

1) Accounts Receivable Turn Over = 8.70

Accounts Receivble turn over = Net Sales / Average Accounts Receivable

Net Sales = 77430

Average AR = (Opening AR+Closing AR) / 2 = (6800+11000) / 2 = 8900

AR Turn Over = 77430 / 8900 = 8.70

2) Average Collection Period = 41.95

Average Collection Period = 365 Days / Accounts Receivable Turn Over

Accounts Receivable Turn over = 8.70

Average Collection Period = 365 / 8.70 = 41.95

3) Inventory Turn Over = 3.70

Inventory Turn Over = Cost Of Goods Sold / Average Inventories

Cost of Goods Sold = 45695

Average Inventory = (Opening Inventory + Closing Inventory) / 2 = (12800 + 11900)/2 =12350

Inventory Turn Over = 45695 / 12350 = 3.7

4) Average Sales Period = 98.65

Average Sales Period = 365 days / Inventory Turn Over

Inventory Turn Over = 3.70

= 365 / 3.70 = 98.65

5) Operating Cycle = 140.60

Operating Cycle = Inventory Period + Accounts Receivable Period

Inventory Period (Average Sales Period) = 98.65

Accounts Receivable Period ( Average Collection Period) = 41.95

= 98.65 + 41.95 = 140.60

6) Total Asset Turn Over = 1.01

Total Asset Turn Over = Net Sales / Average total asset

Average Total Asset = (Opening of total Asset + Closing balance of total asset) / 2

=(81493+72376) / 2 = 76934.5

Net Sales = 77430

Total Asset Turn Over = 77430 / 76934.5 = 1.01