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 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 $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	$	1,200		$	1,210
Accounts receivable, net		9,200			6,800
Inventory		12,600			11,800
Prepaid expenses		670			520
Total current assets		23,670			20,330
Property and equipment:
Land		9,200			9,200
Buildings and equipment, net		42,691			41,275
Total property and equipment		51,891			50,475
Total assets	$	75,561		$	70,805
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,300		$	18,600
Accrued liabilities		990			720
Notes payable, short term		250			250
Total current liabilities		21,540			19,570
Long-term liabilities:
Bonds payable		8,500			8,500
Total liabilities		30,040			28,070
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		40,821			38,035
Total stockholders' equity		45,521			42,735
Total liabilities and stockholders' equity	$	75,561		$	70,805

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	68,800		$	65,000
Cost of goods sold		45,140			34,000
Gross margin		23,660			31,000
Selling and administrative expenses:
Selling expenses		10,600			10,900
Administrative expenses		7,100			6,800
Total selling and administrative expenses		17,700			17,700
Net operating income		5,960			13,300
Interest expense		850			850
Net income before taxes		5,110			12,450
Income taxes		2,044			4,980
Net income		3,066			7,470
Dividends to common stockholders		280			875
Net income added to retained earnings		2,786			6,595
Beginning retained earnings		38,035			31,440
Ending retained earnings	$	40,821		$	38,035

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

Solution 1:

Accounts receivables turnover = Credit Sales / Average accounts receivables

Average accounts receivables = (beginning accounts receivables + Ending accounts receivables) / 2

= ($9,200 + $6,800)/2 = $8,000

Accounts receivables turnover = $68,800 / $8,000 = 8.60 times

Solution B:

Average collection periotd = Nos of days in a year / Accounts receivables turnover ratio

= 365/8.60 = 42.44 days

Solution c:

Inventory turnover ratio = Cost of goods sold / Average inventory

Average inventory = ($12,600 + $11,800)/2 = $12,200

Inventory tunrover ratio = $45,140 / $12,200 = 3.7 times

Soluiton D:

Averaga sale period = 365 / inventory turnover ratio = 365 / 3.7 = 98.65 days

Solution E:

Operaiting cycle = Average collection period + average sales period = 42.44 days + 98.65 days = 141.09 days

Solution F:

Total assets turnover = Sales / Averags total assets

Average total assets = ($75,561 + $70,805) / 2 = $73,183

Total assets turnover = $68,800 / $73,183 = 0.94