Comparative financial statements for Weller Corporation, a merchandising company

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 bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $20. All of the company’s sales are on account.

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.)

Weller Corporation
Comparative Balance Sheet
(dollars in thousands) This Year Last Year Assets Current assets: Cash $ 1,260 $ 1,300 Accounts receivable, net 10,300 6,500 Inventory 12,800 10,700 Prepaid expenses 790 520 Total current assets 25,150 19,020 Property and equipment: Land 10,600 10,600 Buildings and equipment, net 43,274 39,015 Total property and equipment 53,874 49,615 Total assets $ 79,024 $ 68,635 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 20,200 $ 18,400 Accrued liabilities 1,060 840 Notes payable, short term 250 250 Total current liabilities 21,510 19,490 Long-term liabilities: Bonds payable 8,500 8,500 Total liabilities 30,010 27,990 Stockholders' equity: Common stock 700 700 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,700 4,700 Retained earnings 44,314 35,945 Total stockholders' equity 49,014 40,645 Total liabilities and stockholders' equity $ 79,024 $ 68,635

Explanation / Answer

Weller Corporation 1. Accounts receivable turnover = Net Credit sales / Average Accounts Receivable = 76440 / ( 10300 + 6500 )/2 = 9.1 2. Average collection period = Number of working days / Debtors Turnover                 = 365 / 9.1                 = 40.11days 3. Inventory turnover.= Cost ofgoods sold / Average Inventory = 43475 / ( 12800 + 10700 ) /2 = 3.7 4. Average sale period. = Average Collection period 5. Operating cycle.=Days' Sales of Inventory + Days Sales Outstanding                 = (365 /Cost of goods sold ) x Average Inventory + ( 365 / Credit sales ) x Average Accounts Receivable                 = (365 /43475 ) x 11750 + ( 365 / 76440 ) x 8400                 = 98.65 dayds + 40.11 days 6. Total asset turnover.= Net Sales /Average total Assets     = 76440 / ( 79024 + 68635 )/ 2     = 1.04

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