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 600,000 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 $22. 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 $ 1,190 $ 1,360 Accounts receivable, net 9,800 8,100 Inventory 12,800 11,400 Prepaid expenses 670 580 Total current assets 24,460 21,440 Property and equipment: Land 10,300 10,300 Buildings and equipment, net 52,292 38,600 Total property and equipment 62,592 48,900 Total assets $ 87,052 $ 70,340 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 19,000 $ 17,500 Accrued liabilities 930 850 Notes payable, short term 130 130 Total current liabilities 20,060 18,480 Long-term liabilities: Bonds payable 9,000 9,000 Total liabilities 29,060 27,480 Stockholders' equity: Common stock 600 600 Additional paid-in capital 4,000 4,000 Total paid-in capital 4,600 4,600 Retained earnings 53,392 38,260 Total stockholders' equity 57,992 42,860 Total liabilities and stockholders' equity $ 87,052 $ 70,340

Explanation / Answer

(1)Accounts receivable turnover = Credit Sales / Average Accounts receivable

Average Accounts receivable = (Opening Accounts receivable + Closing Accounts receivable) / 2

= (8,100+ 9,800) / 2

= 8,950

Accounts receivable turnover = 82,340 / 8,950

Accounts receivable turnover ratio = 9.2 Times

(2)Average Collection Period = 365 days / Accounts receivable turnover ratio

= 365 days / 9.2 times

Average Collection Period = 40 days

(3)Inventory Turnover ratio = Cost of Goods Sold / Average Inventory

Average Inventory = (Opening Inventory + Closing Inventory) / 2

= (11,400+ 12,800) / 2

Average Inventory = 12,100

Inventory Turnover ratio = 38,720/12,100

Inventory Turnover ratio = 3.2 Times

(4)Average Sale Period and Average collection period are same

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