Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 500,000 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 $ 1,160 $ 1,370 Accounts receivable, net 10,300 7,100 Inventory 12,200 11,600 Prepaid expenses 630 600 Total current assets 24,290 20,670 Property and equipment: Land 9,200 9,200 Buildings and equipment, net 54,882 42,703 Total property and equipment 64,082 51,903 Total assets $ 88,372 $ 72,573 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 20,500 $ 18,700 Accrued liabilities 920 820 Notes payable, short term 150 150 Total current liabilities 21,570 19,670 Long-term liabilities: Bonds payable 8,700 8,700 Total liabilities 30,270 28,370 Stockholders' equity: Common stock 500 500 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,500 4,500 Retained earnings 53,602 39,703 Total stockholders' equity 58,102 44,203 Total liabilities and stockholders' equity $ 88,372 $ 72,573 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $ 80,040 $ 66,000 Cost of goods sold 38,080 34,000 Gross margin 41,960 32,000 Selling and administrative expenses: Selling expenses 10,900 10,200 Administrative expenses 6,400 6,700 Total selling and administrative expenses 17,300 16,900 Net operating income 24,660 15,100 Interest expense 870 870 Net income before taxes 23,790 14,230 Income taxes 9,516 5,692 Net income 14,274 8,538 Dividends to common stockholders 375 375 Net income added to retained earnings 13,899 8,163 Beginning retained earnings 39,703 31,540 Ending retained earnings $ 53,602 $ 39,703 Accounts receivable turnover. (Assume that all sales are on account.) Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) Inventory turnover. (Round your answer to 2 decimal places.) Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.) Total asset turnover. (Round your answer to 2 decimal places.)

Explanation / Answer

1. Accounts Receivable turnover Ratio = Credit sales/Averrage receivables =80040/8,700 = 9.2 times

Average receivables = Opening receivables + closing receivables/2 = 10,300 + 7,100/2 = 8,700

2. Average Collection Period = No. of days in a yearReceivables trunover = 365/9.2 = 39.67 days

3. Inventory trunover Ratio = Cost of goods sold / Avergage inventory = 38080/11,900 = 3.2 times

    Average inventory = opening inventory + closing inventory/2 = 12,200+11,600/2 = 23,800/2 =11,900

4. Averge sales period = 365/Inventory turnover ratio = 365/3.2 = 114.06

5. Operating cycle = Days sales of inventory + Days sales outstanding

   Operating cycle = 365/purchases x Average inventory + 365/credit sales x Average accounts receivables

   Days taken to convert inventories into accounts receivables = 365/38080 x 11,900 = 114.06 days

   Days taken in converting receivables into cash = 365/80040 x 8,700 = 39.65 days

Operating cycles = Days taken to convert inventories into accounts receivables + days taken in converting receivables into cash = 114.06 + 39.65 = 153.71 days

6. Total Asset turnover ratio = Sales/Average Total assets = 80040/80,472.50 = 0.99

Average total assets = opening assets + closing asset/2 = 88,372 + 72,573 /2 = 80,472.50

Note: All ratio are calculated for the current year as there is no informaton in the question

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