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 $27. 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	$	1,160		$	1,290
Accounts receivable, net		9,200			8,200
Inventory		12,500			11,800
Prepaid expenses		660			510
Total current assets		23,520			21,800
Property and equipment:
Land		9,400			9,400
Buildings and equipment, net		50,981			35,375
Total property and equipment		60,381			44,775
Total assets	$	83,901		$	66,575
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,200		$	19,000
Accrued liabilities		940			730
Notes payable, short term		150			150
Total current liabilities		20,290			19,880
Long-term liabilities:
Bonds payable		9,000			9,000
Total liabilities		29,290			28,880
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		49,911			32,995
Total stockholders' equity		54,611			37,695
Total liabilities and stockholders' equity	$	83,901		$	66,575

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	81,780		$	64,000
Cost of goods sold		34,020			41,000
Gross margin		47,760			23,000
Selling and administrative expenses:
Selling expenses		11,400			10,900
Administrative expenses		6,800			6,900
Total selling and administrative expenses		18,200			17,800
Net operating income		29,560			5,200
Interest expense		900			900
Net income before taxes		28,660			4,300
Income taxes		11,464			1,720
Net income		17,196			2,580
Dividends to common stockholders		280			525
Net income added to retained earnings		16,916			2,055
Beginning retained earnings		32,995			30,940
Ending retained earnings	$	49,911		$	32,995

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)	Average Account Receivables = (beginning Account Receivables + ending Account Receivables)/2
	= ( $8200+9200)/2
	= $ 8700
	Account Receivables Turnover Ratio = Sales / average Account Receivables
	= $81780/8700
	=9.4 times
2)
	Account Receivables Turnover ratio
	Average Collection Period = 365/ Account Receivables turnover ratio
	= 365 days /9.4
	=38.83 days
3)	Average Inventory = (beginning inventory + ending inventory)/2
	= ( $11800+12500)/2
	= $ 12150
	Inventory Turnover Ratio = Cost of goods sold / average inventory
	= $34020/12150
	=2.8 times
4)	average sales period = 365/ inventory turnover ratio
	= 365 days /2.8
	=130.36 days
5)	Operating cycle = average collection period + average sales period
	=38.83+130.36
	=169.19 days
6)	Average Assets = (beginning Assets + ending Assets)/2
	= ( $66575+83901)/2
	= $ 75238
	Assets Turnover Ratio = Sales / average Assets
	= $75238/81780
	=0.92 times