Question

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	135,000		$	125,000
Accounts receivable		343,000			482,000
Inventory		574,000			476,000
Plant and equipment, net		788,000			797,000
Investment in Buisson, S.A.		393,000			433,000
Land (undeveloped)		252,000			250,000
Total assets	$	2,485,000		$	2,563,000
Liabilities and Stockholders' Equity
Accounts payable	$	382,000		$	341,000
Long-term debt		1,031,000			1,031,000
Stockholders' equity		1,072,000			1,191,000
Total liabilities and stockholders' equity	$	2,485,000		$	2,563,000

Joel de Paris, Inc. Income Statement
Sales					$	4,650,000
Operating expenses						4,045,500
Net operating income						604,500
Interest and taxes:
Interest expense	$	114,000
Tax expense		192,000				306,000
Net income					$	298,500

The company paid dividends of $179,500 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?

Answer 1

Ans.1

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

(2485000 + 2563000) / 2

2524000

Ans.2

Margin   = Net operating income / Sales * 100

604500 / 4650000 * 100

13%

Turnover = Sales / Average operating assets

4650000 / 2524000

1.84

times

Return on investment = Net operating income / Average operating assets * 100

604500 / 2524000 * 100

23.95%

Ans.3

Residual income = Net operating income - (Average operating assets * minimum required rate of return)

604500 - (2524000 * 15%)

604500 - 378600

225900