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 $21. 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	$	1,180		$	1,230
Accounts receivable, net		9,200			7,200
Inventory		12,500			11,700
Prepaid expenses		760			620
Total current assets		23,640			20,750
Property and equipment:
Land		9,000			9,000
Buildings and equipment, net		48,140			40,246
Total property and equipment		57,140			49,246
Total assets	$	80,780		$	69,996
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,500		$	19,100
Accrued liabilities		1,080			860
Notes payable, short term		220			220
Total current liabilities		20,800			20,180
Long-term liabilities:
Bonds payable		8,900			8,900
Total liabilities		29,700			29,080
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		46,480			36,316
Total stockholders' equity		51,080			40,916
Total liabilities and stockholders' equity	$	80,780		$	69,996

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	76,260		$	65,000
Cost of goods sold		39,930			38,000
Gross margin		36,330			27,000
Selling and administrative expenses:
Selling expenses		11,000			10,900
Administrative expenses		7,100			6,500
Total selling and administrative expenses		18,100			17,400
Net operating income		18,230			9,600
Interest expense		890			890
Net income before taxes		17,340			8,710
Income taxes		6,936			3,484
Net income		10,404			5,226
Dividends to common stockholders		240			450
Net income added to retained earnings		10,164			4,776
Beginning retained earnings		36,316			31,540
Ending retained earnings	$	46,480		$	36,316

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

Ans. 1	Accounts receivable turnover = Net credit sales / Average receivables
	$76,260 / $8,200
	9.30	times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	($7,200 + $9,200) / 2
	$8,200
Ans. 2	Average collection period = No. of days in year / Accounts receivables turnover ratio
	365 / 9.30
	39.25	days
Ans. 3	Inventory turnover = Cost of goods sold / Average Inventory
	$39,930 / $12,100
	3.30	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	($11,700 + $12,500) / 2
	$12,100
Ans. 4	Average sales period   = No. of days in year / Inventory turnover ratio
	365 / 3.30
	110.61	days
Ans. 5	Operating cycle = Average collection period + Average sales period
	39.25 + 110.61
	149.86	days
Ans. 6	Total assets turnover = Sales / Average operating assets
	$76,260 / $75,388
	1.01	times
	*Average assets = (Beginning assets + Ending assets) / 2
	($69,996 + $80,780) / 2
	$75,388
	*Ending balances of last year are considered as beginning balance for this year.