Question

21.

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	331,000		$	505,256
Accounts receivable		169,000			185,000
Inventory		263,000			228,000
Plant and equipment (net)		451,000			388,000
Investment in Cedar Company		266,000			288,000
Land (undeveloped)		365,000			365,000
Total assets	$	1,845,000		$	1,959,256
Liabilities and owners' equity:
Accounts payable	$	190,000		$	189,000
Long-term debt		868,000			868,000
Owners' equity		787,000			902,256
Total liabilities and owners' equity	$	1,845,000		$	1,959,256

Beaker Company
Income Statement
Sales				$	2,080,000
Less operating expenses					1,518,400
Net operating income					561,600
Less interest and taxes:
Interest expense	$	100,400
Tax expense		190,944			291,344
Net income				$	270,256

The company paid dividends of $155,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Beaker Company has set a minimum required return of 40%. What was the company's residual income last year?

Answer 1