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 $29. 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	$	1,260		$	1,390
Accounts receivable, net		9,200			7,400
Inventory		12,900			11,100
Prepaid expenses		730			700
Total current assets		24,090			20,590
Property and equipment:
Land		9,200			9,200
Buildings and equipment, net		45,530			37,758
Total property and equipment		54,730			46,958
Total assets	$	78,820		$	67,548
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,000		$	18,200
Accrued liabilities		970			800
Notes payable, short term		170			170
Total current liabilities		20,140			19,170
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		28,840			27,870
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		45,380			35,078
Total stockholders' equity		49,980			39,678
Total liabilities and stockholders' equity	$	78,820		$	67,548

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	73,040		$	66,000
Cost of goods sold		36,000			39,000
Gross margin		37,040			27,000
Selling and administrative expenses:
Selling expenses		11,300			11,000
Administrative expenses		7,300			6,900
Total selling and administrative expenses		18,600			17,900
Net operating income		18,440			9,100
Interest expense		870			870
Net income before taxes		17,570			8,230
Income taxes		7,028			3,292
Net income		10,542			4,938
Dividends to common stockholders		240			600
Net income added to retained earnings		10,302			4,338
Beginning retained earnings		35,078			30,740
Ending retained earnings	$	45,380		$	35,078

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. Accounts receivable turnover. = Sales / Average receivable

Average receivable = ( Beg. AR. + End. Ar. ) / 2

Sales = 73040

Average receivable = ( 7400 + 9200 ) / 2 = 8300

Accounts receivable turnover. = 73040 / 8300 = 8.80 times

2. Average collection period. = 365 / Accounts receivable turnover

Average collection period. = 365 / 8.80 = 41.48 days

3. Inventory turnover =   Cost of good sold / Average inventory

Average inventory = ( Beg. Inv. + End. Inv. ) / 2

Cost of good sold = 36000

Average inventory = ( 11100 + 12900 ) / 2 = 12000

Accounts inventory turnover. = 36000 / 12000 = 3.00 times

4. Average sale period = 365 / Inventory turnover

Average sale period = 365 / 3.00 = 121.67 days

5. Operating cycle = Average collection period + Average sale period

Operating cycle = 41.48 days + 121.67 days = 163.15 days

6. Total asset turnover = Sales / Average total assets

Sales = 73040

Average total assets = (Beg. Total assets + End. Total assets ) / 2

= 67548 + 78820 ) / 2 = 73184

Total asset turnover = 73040 / 73184 = 0.99 times