Question

# Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance...

Financial data for Joel de Paris, Inc., for last year follow:

 Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash \$ 140,000 \$ 128,000 Accounts receivable 339,000 489,000 Inventory 561,000 474,000 Plant and equipment, net 870,000 859,000 Investment in Buisson, S.A. 393,000 432,000 Land (undeveloped) 254,000 253,000 Total assets \$ 2,557,000 \$ 2,635,000 Liabilities and Stockholders' Equity Accounts payable \$ 389,000 \$ 332,000 Long-term debt 1,018,000 1,018,000 Stockholders' equity 1,150,000 1,285,000 Total liabilities and stockholders' equity \$ 2,557,000 \$ 2,635,000

 Joel de Paris, Inc. Income Statement Sales \$ 3,860,000 Operating expenses 3,203,800 Net operating income 656,200 Interest and taxes: Interest expense \$ 120,000 Tax expense 200,000 320,000 Net income \$ 336,200

The company paid dividends of \$201,200 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%.

Required:

1. Compute the company's average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)

3. What was the company’s residual income last year?

1. Average operating assets ______

2. Margin ________%

Turnover _______

ROI ______%

3. Residual income________

Answer- 1)-The company average operating assets for last year was =\$1930000.

Explanation- Calculation of average operating assets = (Opening operating assets+ Closing operating assets)/2

=(\$140000+\$339000+\$561000+\$870000)+(\$128000+\$489000+\$474000+\$859000)/2

=(\$1910000+\$1950000)/2

=\$1930000

Operating assets = Cash+ Accounts receivable+ Inventory+ Plant & equipment, net

2)- Margin – (Net operating income /Sales)*100

= (\$656200/\$3860000)*100

= 17%

Turnover = Sales/ Average operating assets

= \$3860000/\$1930000

= 2

Return on investment = Margin*Turnover

= 17%*2

= 34%

3)- Residual income for the last year = \$366700.

Explanation-Residual income =Operating income –(Average operating assets*Required rate of return)

= \$656200-(\$1930000*15%)

= \$656200-\$289500

= \$366700

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