Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	127,000		$	137,000
Accounts receivable		334,000			487,000
Inventory		568,000			482,000
Plant and equipment, net		841,000			804,000
Investment in Buisson, S.A.		391,000			429,000
Land (undeveloped)		255,000			254,000
Total assets	$	2,516,000		$	2,593,000
Liabilities and Stockholders' Equity
Accounts payable	$	386,000		$	332,000
Long-term debt		955,000			955,000
Stockholders' equity		1,175,000			1,306,000
Total liabilities and stockholders' equity	$	2,516,000		$	2,593,000

Joel de Paris, Inc. Income Statement
Sales					$	4,158,000
Operating expenses						3,534,300
Net operating income						623,700
Interest and taxes:
Interest expense	$	115,000
Tax expense		199,000				314,000
Net income					$	309,700

The company paid dividends of $178,700 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?

Answer 1

1
Beginning operating assets = 2516000-391000-255000= 1870000
Ending operating assets = 2593000-429000-254000= 1910000
Average operating assets=(1870000+1910000)/2= 1890000
2
Margin = Net operating income /Sales = 623700/4158000= 15%
Turnover = Sales/Average operating assets = 4158000/1890000= 2.2
ROI = Margin*Turnover = 15%*2.2= 33%
3
Residual income = 623700-(1890000*15%)= $340200