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 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 $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	$	1,100		$	1,340
Accounts receivable, net		9,200			8,300
Inventory		13,300			11,100
Prepaid expenses		690			630
Total current assets		24,290			21,370
Property and equipment:
Land		10,800			10,800
Buildings and equipment, net		48,957			37,012
Total property and equipment		59,757			47,812
Total assets	$	84,047		$	69,182
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,400		$	18,500
Accrued liabilities		920			770
Notes payable, short term		240			240
Total current liabilities		20,560			19,510
Long-term liabilities:
Bonds payable		8,800			8,800
Total liabilities		29,360			28,310
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		50,087			36,272
Total stockholders' equity		54,687			40,872
Total liabilities and stockholders' equity	$	84,047		$	69,182

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	79,625		$	65,000
Cost of goods sold		37,820			38,000
Gross margin		41,805			27,000
Selling and administrative expenses:
Selling expenses		10,800			10,600
Administrative expenses		6,700			6,300
Total selling and administrative expenses		17,500			16,900
Net operating income		24,305			10,100
Interest expense		880			880
Net income before taxes		23,425			9,220
Income taxes		9,370			3,688
Net income		14,055			5,532
Dividends to common stockholders		240			300
Net income added to retained earnings		13,815			5,232
Beginning retained earnings		36,272			31,040
Ending retained earnings	$	50,087		$	36,272

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

Answer-1)- Accounts receivable turnover = Sales on account /Average accounts receivable

=$79625/ ($8300+$9200)/2

=$79625/$8750

=9.1 times

2)-Average collection period = 365 days/Accounts receivable turnover

= 365 days/9.1 times

= 40.11 days

3)- Inventory turnover = Cost of goods sold/Average inventory

= $37820/($11100+$13300)/2

= $37820/$12200

= 3.1 times

4)- Average sale period = 365 days/Inventory turnover

= 365 days/ 3.1 times

= 117.74 days

5)- Operating cycle =157.85 days.

Explanation- Operating cycle = Average sale period + Average collection period

= 40.11 days+ 117.74 days

= 157.85 days

6)- Asset turnover =Net sales/Average Total assets

= $79625/($69182+$84047)/2

= $78625/$76614.5

= 1.03 times