Question

# Financial data for Guyer Corporation, for last year follow: Guyer Corporation Balance Sheet Beginning Balance Ending...

Financial data for Guyer Corporation, for last year follow:

 Guyer Corporation Balance Sheet Beginning Balance Ending Balance Assets Cash \$ 140,000 \$ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 660,000 Investment in ABC, Inc. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets \$ 2,020,000 \$ 2,140,000 Liabilities and Stockholders' Equity Accounts payable \$ 360,000 \$ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 330,000 Total liabilities and stockholders' equity \$ 2,020,000 \$ 2,140,000
 Guyer Corporation Income Statement Sales \$ 4,050,000 Operating expenses 3,640,000 Net operating income 410,000 Interest and taxes: Interest expense \$ 150,000 Tax expense 110,000 260,000 Net income \$ 150,000

The company paid dividends of \$15,000 last year. The “Investment in ABC, Inc.” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 8%.

What was the company’s residual income last year?

Beginning Operating Assets = Cash + Accounts Receivable + Inventory + Plant and Equipment
Beginning Operating Assets = \$140,000 + \$450,000 + \$320,000 + \$680,000
Beginning Operating Assets = \$1,590,000

Ending Operating Assets = Cash + Accounts Receivable + Inventory + Plant and Equipment
Ending Operating Assets = \$120,000 + \$530,000+ \$380,000 + \$660,000
Ending Operating Assets = \$1,690,000

Average Operating Assets = (Beginning Operating Assets + Ending Operating Assets)/2
Average Operating Assets = (\$1,590,000 + \$1,690,000)/2
Average Operating Assets = \$1,640,000

Residual Income = Net Operating Income - (Minimum Required Return * Average Operating Assets)
Residual Income = \$410,000 - (8% * \$1,640,000)
Residual Income =\$410,000 - \$131,200
Residual Income = \$278,800

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