Question

#3

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 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 $22. 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		$	1,370
Accounts receivable, net		9,600			6,700
Inventory		13,900			10,800
Prepaid expenses		740			680
Total current assets		25,360			19,550
Property and equipment:
Land		10,300			10,300
Buildings and equipment, net		40,009			38,764
Total property and equipment		50,309			49,064
Total assets	$	75,669		$	68,614
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,300		$	18,700
Accrued liabilities		910			750
Notes payable, short term		220			220
Total current liabilities		21,430			19,670
Long-term liabilities:
Bonds payable		8,600			8,600
Total liabilities		30,030			28,270
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		41,039			35,744
Total stockholders' equity		45,639			40,344
Total liabilities and stockholders' equity	$	75,669		$	68,614

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	69,275		$	65,000
Cost of goods sold		41,990			40,000
Gross margin		27,285			25,000
Selling and administrative expenses:
Selling expenses		10,600			10,000
Administrative expenses		6,600			6,400
Total selling and administrative expenses		17,200			16,400
Net operating income		10,085			8,600
Interest expense		860			860
Net income before taxes		9,225			7,740
Income taxes		3,690			3,096
Net income		5,535			4,644
Dividends to common stockholders		240			240
Net income added to retained earnings		5,295			4,404
Beginning retained earnings		35,744			31,340
Ending retained earnings	$	41,039		$	35,744

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 turnover = net credit sales /Average accounts receivable
	Net sales	69275
	Beginning accounts receivable	6700
	Ending accounts receivable	9600
	Average accounts receivable	8150
	Accounts receivable turnover	8.5
2	Days sales outstanding = 365 / accounts receivable tunover
	Days sales outstanding	42.9	Days
3	Inventory turnover = Cost of goods sold / Average inventory
	Cost of goods sold	41990
	Beginning inventory	10800
	Ending inventory	13900
	Average inventory	12350
	Average inventory = (Beginning + Ending )/2
	Inventory turnover	3.4
4	Days sale in inventory = 365 / inventory turnover
	Days sales in inventory	107.4	Days
5	Operating cycle = days sales in inventory + average collection period
	Operating cycle	150.3	Days
6	Assets turnover ratio = Net sales / average total assets
	Net sales	69275
	Beginning total assets	68614
	Ending total assets	75669
	Average total assets	72141.5
	Assets turnover ratio	0.96