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 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 $25. 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	$	1,100		$	1,330
Accounts receivable, net		9,400			8,100
Inventory		13,400			11,200
Prepaid expenses		680			610
Total current assets		24,580			21,240
Property and equipment:
Land		10,900			10,900
Buildings and equipment, net		49,914			39,496
Total property and equipment		60,814			50,396
Total assets	$	85,394		$	71,636
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,100		$	19,300
Accrued liabilities		920			850
Notes payable, short term		290			290
Total current liabilities		21,310			20,440
Long-term liabilities:
Bonds payable		9,400			9,400
Total liabilities		30,710			29,840
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		50,084			37,196
Total stockholders' equity		54,684			41,796
Total liabilities and stockholders' equity	$	85,394		$	71,636

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	78,750		$	64,000
Cost of goods sold		38,130			36,000
Gross margin		40,620			28,000
Selling and administrative expenses:
Selling expenses		11,100			10,300
Administrative expenses		6,700			6,600
Total selling and administrative expenses		17,800			16,900
Net operating income		22,820			11,100
Interest expense		940			940
Net income before taxes		21,880			10,160
Income taxes		8,752			4,064
Net income		13,128			6,096
Dividends to common stockholders		240			240
Net income added to retained earnings		12,888			5,856
Beginning retained earnings		37,196			31,340
Ending retained earnings	$	50,084		$	37,196

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

Ratio for this year:
1)	Acccounts receivable turnover				=	Net Credit Sales/Average Accounts Receivable
					=	$       78,750	/	$    8,750
					=	9.00
	Working:
	Average Accounts Receivable				=	(8100+9400)/2
					=	$         8,750
2)	Average collection period				=	Number of days in a year/Accounts Receivable Turnover
					=	365	/	9.00
					=	40.56	Days
3)	Inventory turnover				=	Cost of goods sold/Average Inventory
					=	$ 38,130.00	/	$ 12,300
					=	3.10	Days
	Working:
	Average Inventory				=	(13400+11200)/2
					=	$       12,300
4)	Average sale period				=	Days in a year/Inventory turnover ratio
					=	365	/	3.10
					=	117.74	Days