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 $ 127,000 $ 133,000
Accounts receivable 340,000 483,000
Inventory 565,000 480,000
Plant and equipment, net 878,000 854,000
Investment in Buisson, S.A. 398,000 434,000
Land (undeveloped) 254,000 251,000
Total assets $ 2,562,000 $ 2,635,000
Liabilities and Stockholders' Equity
Accounts payable $ 385,000 $ 347,000
Long-term debt 972,000 972,000
Stockholders' equity 1,205,000 1,316,000
Total liabilities and stockholders' equity $ 2,562,000 $ 2,635,000


Joel de Paris, Inc.
Income Statement
Sales $ 5,018,000
Operating expenses 4,365,660
Net operating income 652,340
Interest and taxes:
Interest expense $ 130,000
Tax expense 195,000 325,000
Net income $ 327,340


The company paid dividends of $216,340 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

SOLUTION

1. Operating assets = Total assets - Investments - Land

Particulars Beginning ($) Ending ($)
Total assets 2,562,000 2,635,000
Less:Investments (398,000) (434,000)
Less:Land (254,000) (251,000)
Operating assets 1,910,000 1,950,000

Average operating assets = (Beginning operating assets + Ending operating assets) / 2

= ($1,910,000 + $1,950,000)/2

= $3,860,000/2 = $1,930,000

2. Margin = Net operating income / sales

= $652,340/ $5,018,000

= 13%

Turnover = Sales/ Average operating assets

= $5,018,000 / $1,930,000

= 2.6

ROI = Margin * Turnover

= 13% * 2.6

= 33.8%

3. Residual Income= Net operating income - Minimum required return on average operating assets

=$652,340 - (15% * $1,930,000)

=$652,340 -$289,500

= $362,840

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