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 $23. 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	$	1,190		$	1,230
Accounts receivable, net		9,400			7,900
Inventory		12,700			11,700
Prepaid expenses		680			700
Total current assets		23,970			21,530
Property and equipment:
Land		9,600			9,600
Buildings and equipment, net		54,064			39,061
Total property and equipment		63,664			48,661
Total assets	$	87,634		$	70,191
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,000		$	17,600
Accrued liabilities		920			870
Notes payable, short term		210			210
Total current liabilities		21,130			18,680
Long-term liabilities:
Bonds payable		9,900			9,900
Total liabilities		31,030			28,580
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		51,904			36,911
Total stockholders' equity		56,604			41,611
Total liabilities and stockholders' equity	$	87,634		$	70,191

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	80,445		$	66,000
Cost of goods sold		36,600			36,000
Gross margin		43,845			30,000
Selling and administrative expenses:
Selling expenses		10,600			10,800
Administrative expenses		6,800			6,800
Total selling and administrative expenses		17,400			17,600
Net operating income		26,445			12,400
Interest expense		990			990
Net income before taxes		25,455			11,410
Income taxes		10,182			4,564
Net income		15,273			6,846
Dividends to common stockholders		280			875
Net income added to retained earnings		14,993			5,971
Beginning retained earnings		36,911			30,940
Ending retained earnings	$	51,904		$	36,911
Required: Compute the following financial data for this year: PART1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.) PART2. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) PART3. Inventory turnover. (Round your answer to 2 decimal places.) PART4. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) PART5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.) PART6. Total asset turnover. (Round your answer to 2 decimal places.)

Answer 1

1	Accounts receivable turnover = net credit sales /Average accounts receivable
	Net sales	80445
	Beginning accounts receivable	7900
	Ending accounts receivable	9400
	Average accounts receivable	8650
	Accounts receivable turnover	9.3
2	Days sales outstanding = 365 / accounts receivable tunover
	Days sales outstanding	39.2	Days
3	Inventory turnover = Cost of goods sold / Average inventory
	Cost of goods sold	36600
	Beginning inventory	11700
	Ending inventory	12700
	Average inventory	12200
	Average inventory = (Beginning + Ending )/2
	Inventory turnover	3.0
4	Days sale in inventory = 365 / inventory turnover
	Days sales in inventory	121.7	Days
5	Operating cycle = days sales in inventory + average collection period
	Operating cycle	160.9	Days
6	Assets turnover ratio = Net sales / average total assets
	Net sales	80445
	Beginning total assets	70191
	Ending total assets	87634
	Average total assets	78912.5
	Assets turnover ratio	1.02