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 $26. 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	$	1,120		$	1,330
Accounts receivable, net		10,000			8,100
Inventory		12,300			12,200
Prepaid expenses		720			600
Total current assets		24,140			22,230
Property and equipment:
Land		9,100			9,100
Buildings and equipment, net		45,996			38,137
Total property and equipment		55,096			47,237
Total assets	$	79,236		$	69,467
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,200		$	18,200
Accrued liabilities		1,040			880
Notes payable, short term		100			100
Total current liabilities		20,340			19,180
Long-term liabilities:
Bonds payable		9,800			9,800
Total liabilities		30,140			28,980
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		44,396			35,787
Total stockholders' equity		49,096			40,487
Total liabilities and stockholders' equity	$	79,236		$	69,467

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	80,545		$	66,000
Cost of goods sold		46,550			39,000
Gross margin		33,995			27,000
Selling and administrative expenses:
Selling expenses		11,400			10,600
Administrative expenses		6,800			6,800
Total selling and administrative expenses		18,200			17,400
Net operating income		15,795			9,600
Interest expense		980			980
Net income before taxes		14,815			8,620
Income taxes		5,926			3,448
Net income		8,889			5,172
Dividends to common stockholders		280			525
Net income added to retained earnings		8,609			4,647
Beginning retained earnings		35,787			31,140
Ending retained earnings	$	44,396		$	35,787

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
	$80,545 / $9,050
	8.90	times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	($8,100 + $10,000) / 2
	$9,050
Ans. 2	Average collection period = No. of days in year / Accounts receivables turnover ratio
	365 / 8.90
	41.01	days
Ans. 3	Inventory turnover = Cost of goods sold / Average Inventory
	$46,550 / $12,250
	3.80	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	($12,200 + $12,300) / 2
	$12,250
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
	41.01 + 96.05
	137.06	days
Ans. 6	Total assets turnover = Sales / Average operating assets
	$80,545 / $74,351.50
	1.08	times
	*Average assets = (Beginning assets + Ending assets) / 2
	($69,467 + $79,236) / 2
	$74,351.50
	*Ending balances of last year are considered as beginning balance for this year.