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 $26. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year $ 1,110 9,700 12,900 790 24,500 $ 1,250 7,500 11,500 510 20,760 11,000 54, 668 65, 668 $90,168 11,000 ,778 50,778 $71,538 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Long-term liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $20,300 1,080 220 21, 600 $18, 800 770 220 19.790 8,200 29,800 8, 200 27,990 700 4,000 4,700 55, 668 60, 368 $90,168 700 ,000 700 38,848 43,548 $71,538 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $81,700 $65,000 Cost of goods sold 35, 380 33,000 Gross margin 46, 320 32,000 Selling and administrative expenses: Selling expenses 10,500 10,900 Administrative expenses 6,500 6,600 Total selling and administrative expenses 17,000 17,500 Net operating income 29,320 14,500 Interest expense 820 Net income before taxes 13,680 Income taxes 5, 472 Net income 8, 208 Dividends to common stockholders 700 Net income added to retained earnings 7,508 Beginning retained earnings 848 31, 340 Ending retained earnings $55,668 $38,848

Answer 1

	.
	1)
		Average Account Receivables = (beginning Account Receivables + ending Account Receivables)/2
		= ( $7500+9700)/2
		= $ 8600
		Account Receivables Turnover Ratio = Sales / average Account Receivables
		= $81700/8600
		=9.5 times
	2)	Average Collection Period = 365/ Account Receivables turnover ratio
		= 365 days /9.5
		=38.42 days
	3)	Average Inventory = (beginning inventory + ending inventory)/2
		= ( $11500+12900)/2
		= $ 12200
		Inventory Turnover Ratio = Cost of goods sold / average inventory
		= $35380/12200
		=2.9 times
	4)	Average Sales Period = 365/ inventory turnover ratio
		= 365 days /2.9
		=125.86 days
	5)	Operating Cycle = Average Sales Period+ Average Collection Period
		=125.86+38.42
		164.28	days
	6)	Average Assets = (beginning Assets + ending Assets)/2
		= ( $90168+71538)/2
		= $ 80853
		Assets Turnover Ratio = Sales / average Assets
		= $81700/80853
		=1.01 times
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