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	$	1,160		$	1,340
Accounts receivable, net		10,000			7,200
Inventory		12,700			12,200
Prepaid expenses		800			530
Total current assets		24,660			21,270
Property and equipment:
Land		10,300			10,300
Buildings and equipment, net		49,604			41,156
Total property and equipment		59,904			51,456
Total assets	$	84,564		$	72,726
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,600		$	19,000
Accrued liabilities		910			760
Notes payable, short term		280			280
Total current liabilities		20,790			20,040
Long-term liabilities:
Bonds payable		8,400			8,400
Total liabilities		29,190			28,440
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		50,774			39,686
Total stockholders' equity		55,374			44,286
Total liabilities and stockholders' equity	$	84,564		$	72,726

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	78,260		$	65,000
Cost of goods sold		39,840			32,000
Gross margin		38,420			33,000
Selling and administrative expenses:
Selling expenses		11,400			10,900
Administrative expenses		7,300			6,100
Total selling and administrative expenses		18,700			17,000
Net operating income		19,720			16,000
Interest expense		840			840
Net income before taxes		18,880			15,160
Income taxes		7,552			6,064
Net income		11,328			9,096
Dividends to common stockholders		240			450
Net income added to retained earnings		11,088			8,646
Beginning retained earnings		39,686			31,040
Ending retained earnings	$	50,774		$	39,686

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
	= ( $7200+10000)/2
	= $ 8600
	Account Receivables Turnover Ratio = Sales / average Account Receivables
	= $78260/8600
	=9.1 times
2)	Average Collection Period = 365/ Account Receivables turnover ratio
	= 365 days /9.1
	=40.11 days
3)
	Average Inventory = (beginning inventory + ending inventory)/2
	= ( $12200+12700)/2
	= $ 12450
	Inventory Turnover Ratio = Cost of goods sold / average inventory
	= $39840/12450
	=3.2 times
4)	Average Sales Period = 365/ inventory turnover ratio
	= 365 days /3.2
	=114.06 days
5)	Operating Cycle = Average Sales Period+ Average Collection Period
	=40.11+114.06
	154.17	days
6)	Average Assets = (beginning Assets + ending Assets)/2
	= ( $72726+84564)/2
	= $ 78645
	Assets Turnover Ratio = Sales / average Assets
	= $78260/78645
	=1 times
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