Question

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

Joel de Paris, Inc.
Balance Sheet

Beginning
Balance Ending
Balance

Assets

Cash$130,000 $127,000

Accounts receivable 343,000  485,000

Inventory 579,000  478,000

Plant and equipment, net 788,000  790,000

Investment in Buisson, S.A. 401,000  426,000

Land (undeveloped) 246,000  255,000

Total assets$2,487,000 $2,561,000

Liabilities and Stockholders' Equity

Accounts payable$381,000 $332,000

Long-term debt 969,000  969,000

Stockholders' equity 1,137,000  1,260,000

Total liabilities and stockholders' equity$2,487,000 $2,561,000

Joel de Paris, Inc.
Income Statement

Sales    $5,022,000

Operating expenses     4,318,920

Net operating income     703,080

Interest and taxes:       

Interest expense$113,000     

Tax expense 210,000   323,000

Net income    $380,080

The company paid dividends of $257,080 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

Answer- 1)-The company average operating assets for last year was =$1900000.

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

=($130000+$343000+$579000+$788000)+($127000+$485000+$478000+$790000)/2

= ($1840000+$1880000)/2

=$1860000

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

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

= ($703080/$5022000)*100

= 14%

Turnover = Sales/ Average operating assets

= $5022000/$1860000

= 2.7

Return on investment = Margin*Turnover

= 14%*2.7

= 37.8%

3)- Residual income for the last year = $424080.

Explanation-

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

= $703080-($1860000*15%)

= $703080-$279000

= $424080