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 680,000 640,000 Investment in ABC, Inc. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets \$ 2,020,000 \$ 2,120,000 Liabilities and Stockholders' Equity Accounts payable \$ 360,000 \$ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 310,000 Total liabilities and stockholders' equity \$ 2,020,000 \$ 2,120,000
 Guyer Corporation Income Statement Sales \$ 4,050,000 Operating expenses 3,610,000 Net operating income 440,000 Interest and taxes: Interest expense \$ 150,000 Tax expense 110,000 260,000 Net income \$ 180,000

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 9%.

What was the company’s residual income last year?

Multiple Choice

• \$249,200

• \$-10,800

• \$293,300

• \$33,300

Operating assets, beginning = Cash + Accounts receivables + Inventory + Plant and equipment

= 140,000 + 450,000 + 320,000 + 680,000

= \$1,590,000

Operating assets, ending = Cash + Accounts receivables + Inventory + Plant and equipment

= 120,000 + 530,000 + 380,000 + 640,000

= \$1,670,000

Average operating assets = (Operating assets, beginning + Operating assets, ending)/2

= (1,590,000 + 1,670,000)/2

= \$1,630,000

Residual income = Net operating income - (Average operating assets x Minimum rate of return)

= 180,000 - (1,630,000 x 9%)

= 180,000 - 146,700

= \$33,300

the company’s residual income last year= \$33,300

Fourth option is correct.

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