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 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 $28. 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	$	1,210		$	1,320
Accounts receivable, net		9,900			8,500
Inventory		13,400			11,300
Prepaid expenses		610			550
Total current assets		25,120			21,670
Property and equipment:
Land		10,700			10,700
Buildings and equipment, net		50,985			40,967
Total property and equipment		61,685			51,667
Total assets	$	86,805		$	73,337
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,400		$	19,200
Accrued liabilities		940			760
Notes payable, short term		280			280
Total current liabilities		20,620			20,240
Long-term liabilities:
Bonds payable		9,300			9,300
Total liabilities		29,920			29,540
Stockholders' equity:
Common stock		700			700
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,700			4,700
Retained earnings		52,185			39,097
Total stockholders' equity		56,885			43,797
Total liabilities and stockholders' equity	$	86,805		$	73,337

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	82,800		$	65,000
Cost of goods sold		41,990			33,000
Gross margin		40,810			32,000
Selling and administrative expenses:
Selling expenses		10,800			10,200
Administrative expenses		6,800			6,400
Total selling and administrative expenses		17,600			16,600
Net operating income		23,210			15,400
Interest expense		930			930
Net income before taxes		22,280			14,470
Income taxes		8,912			5,788
Net income		13,368			8,682
Dividends to common stockholders		280			525
Net income added to retained earnings		13,088			8,157
Beginning retained earnings		39,097			30,940
Ending retained earnings	$	52,185		$	39,097

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.)

	1. Accounts receivable turnover 2. Average collection period days 3. Inventory turnover 4. Average sale period days 5. Operating cycle days 6. Total asset turnover

Answer 1

1.	Accounts receivables turnover = Credit sales / Average accounts receivables = 82800 / 9200	9.00
2.	Average collection period = Days in a year / Accounts receivables = 365 / 9.00	40.56	Days
3.	Inventory turnover = Cost of goods sold / Average inventory = 41990 / 12350	3.40
4.	Average sale period = Days in a year / Inventory turnover = 365 / 3.40	107.35	Days
5.	Operating cycle = Average collection period + Average sale period = 40.56 + 107.35	147.91	Days
6.	Total asset turnover = Sales / Average total assets = 82800 / 80071	1.03

Working note :
1) Average Accounts receivables = ( Beginning accounts receivables + Ending accounts receivables) / 2 = ( 8500 + 9900 ) / 2	9200
2) Average inventory = ( Beginning inventory + Ending inventory ) / 2 = ( 11300 + 13400 ) / 2	12350
3) Average total assets = ( Beginning total assets + Ending total assets ) / 2 = ( 73337 + 86805 ) / 2	80071