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 $ 139,000 $ 130,000
Accounts receivable 335,000 480,000
Inventory 569,000 486,000
Plant and equipment, net 847,000 834,000
Investment in Buisson, S.A. 406,000 430,000
Land (undeveloped) 252,000 250,000
Total assets $ 2,548,000 $ 2,610,000
Liabilities and Stockholders' Equity
Accounts payable $ 376,000 $ 331,000
Long-term debt 1,004,000 1,004,000
Stockholders' equity 1,168,000 1,275,000
Total liabilities and stockholders' equity $ 2,548,000 $ 2,610,000


Joel de Paris, Inc.
Income Statement
Sales $ 4,775,000
Operating expenses 4,154,250
Net operating income 620,750
Interest and taxes:
Interest expense $ 123,000
Tax expense 194,000 317,000
Net income $ 303,750


The company paid dividends of $196,750 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?

Homework Answers

Answer #1

Ans:

1. Company Average Operating Assets= Beginning Operating Assets+ Closing operating assets/2

Operating Assets= Total Assets- Land(undeveloped)-Investment in Buisson, S.A.

Beginning operating assets= 2,548,000-406,000-252,000

beginning Operating assets= 1,890,000

Closing operating assets= 2,610,000-430,000-250,000

Closing operating assets= 1,930,000

Average operating Assets= 1,890,000+1,930,000/2

=> 1,910,000

2. Margin= Net operating income/sales

margin= 303,750/4,775,000*100

=> 6.36%

Turnover= Sales/average operating assets

=> 4,775,000/1,910,000

=> 2.50 times

Return on investment= Margin* turnover

=> 6.36*2.50

=> 15.90%

3. Company residual income =net operating Income-{Average operating assets*rate of return}

=> 303,750-(1,910,000*15%)

=> 303,750- 286,500

=> $17,250

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