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		$	131,000
Accounts receivable		336,000			489,000
Inventory		577,000			489,000
Plant and equipment, net		842,000			821,000
Investment in Buisson, S.A.		407,000			427,000
Land (undeveloped)		246,000			255,000
Total assets	$	2,543,000		$	2,612,000
Liabilities and Stockholders' Equity
Accounts payable	$	375,000		$	330,000
Long-term debt		976,000			976,000
Stockholders' equity		1,192,000			1,306,000
Total liabilities and stockholders' equity	$	2,543,000		$	2,612,000

Joel de Paris, Inc. Income Statement
Sales					$	4,202,000
Operating expenses						3,487,660
Net operating income						714,340
Interest and taxes:
Interest expense	$	111,000
Tax expense		202,000				313,000
Net income					$	401,340

The company paid dividends of $287,340 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?

The company paid dividends of $287,340 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?

The company paid dividends of $287,340 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?

The company paid dividends of $287,340 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?

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

1) compute average operating assets for last year

Particular	Beginning	ending
Cash	$135000	$131000
Accounts receivable	$336000	$489000
Inventory	$577000	$489000
Plant and equipment	$842000	$821000
Total operating ASSETS	$1890000	$1930000

Average operating assets = beginning+ending/2

= $1890000+$1930000/2 = $1910000

average operating assets = $1910000

2) margin = net operating income/sales×100

= $714340/$4202000×100 = 17%

Asset turnover =net sales/average operating assets

= $4202000/$1910000×100 = 2.2 times

Return on investment = margin×turnover

= 17×2.2 = 37.4%

3) residual income = net operating income - (AVERAGE operating assets×minimum required rate)

=$714340 - ($1910000×15%)

= $714340 - $286500

= $427840

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