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 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 $22. All of the company’s sales are on account.

Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

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.)

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 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 $22. All of the company’s sales are on account.

Explanation / Answer

NET CREDIT SALES = $77430

AVERAGE DEBORS = OPENING DBTORS + CLOSING DEBTORS / 2

   = 7100 + 10700 / 2 = 17800

ACCOUNTS RECEIVABLE TURNOVER RATIO (AVERAGE SALE PERIOD)

= NET CREDIT SALES/AVERAGE DEBTORS

= 4.35 TIMES

AVERAGE COLLECTION PERIOD = TOTAL DAYS /ACCOUNTS RECEIVABLE TURNOVER

= 365/4.35

= 83.91 DAYS

COGS = $34655

AVERAGE STOCK = OPENING STOCK +CLOSING STOCK / 2

   = 11800 +12100 / 2 = 11950

INVENTORY TURNOVER RATIO = COGS/AVERAGE STOCK

   = 34655 / 11950

   = 2.9 TIMES

OPERATING CYCLE = Days' Sales of Inventory + Days Sales Outstanding

= INVENTORY CONVERSION PERIOD + AVERAGE COLLECTION PERIOD

= 365 * 11950 / 34655 + 83.91 DAYS

= 125.86 +83.91

   = 210 DAYS APPROX

TOTAL ASSETS = $86645

TOTA SALES = $77430

TOATL ASSET TURNOVER RATIO = TOTAL ASSETS/TOTAL SALES

   = 86645/77430

   = 1.12 TIMES

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