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 500,000 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 $27. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Accounts receivable, net Inventory Prepaid expenses $ 1,100 1,250 7,800 13,000 11,200 600 11,000 610 Total current assets 25,710 20,850 Property and equipment: Land Buildings and equipment, net 10,500 10,500 48,056 40,170 58,556 50,670 $84,266 $71,520 Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued liabilities Notes payable, short term $19,400 $17,500 830 110 950 110 Total current liabilities Long-term liabilities: 20,460 18,440 10,000 10,000 30,460 28,440 Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital 500 4,000 500 4,000 4,500 4,500 Total paid-in capital Retained earnings 49,306 38,580 53,806 43,080 $84,266 $71,520 Total stockholders' equity Total liabilities and stockholders' equity Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) Sales Cost of goods sold This Year Last Year $81,780 $65,000 44,770 35,000

Explanation / Answer

1.) Accounts receivable Turnover= Net Annual Credit Sales ÷ ((Beginning Accounts Receivable + Ending Accounts Receivable) / 2) = 81780/((11000+7800)/2) = 9 days 2.) Average Collection Period= 365/Accounts receivable turnover= 41 days 3.) Inventory Turnover = Cost of goods Sold/Average Inventory = 44770/((13000+11200)/2) = 4 days 4.) Average Sale period= 365/Inventory turnover ratio = 365/4 = 91 days

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