Financial data for Redstone Company for last year appear below: Redstone Company
ID: 2487930 • Letter: F
Question
Financial data for Redstone Company for last year appear below: Redstone Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash $ 290,000 $ 451,280 Accounts receivable 209,000 193,000 Inventory 282,000 232,000 Plant and equipment (net) 430,000 393,000 Investment in Balsam Company 304,000 255,000 Land (undeveloped) 241,000 241,000 Total assets $ 1,756,000 $ 1,765,280 Liabilities and owners’ equity: Accounts payable $ 208,000 $ 175,000 Long-term debt 824,000 824,000 Owners’ equity 724,000 766,280 Total liabilities and owners’ equity $ 1,756,000 $ 1,765,280 Redstone Company Income statement Sales $ 1,960,000 Less operating expenses 1,519,000 Net operating income 441,000 Less interest and taxes: Interest expense $ 103,600 Tax expense 141,120 244,720 Net income $ 196,280 The company paid dividends of $154,000 last year. The "Investment in Balsam 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. (Round your intermediate calculations and final answers to 2 decimal places.) b. The Board of Directors of Redstone has set a minimum required return of 30%. What was the company's residual income last year? (Round your intermediate calculations and final answers to 2 decimal places.)Explanation / Answer
Answer to PArt a
Company's Margin = Net operating Income/ Sales
Net operating Income = Sales- Operating Expenses = 441,000
Company's Margin = 441000/1960000
Company's Margin = 22.55
Company's Turnover = Sales/ Annual Operating Assets
Annual Operating Assets = (Opening Operating Assets + Closing operating Assets)/2
Opertaing Assets = Cash + Accounts Receiveable + Inventory + Plant & Equipment
Opening operating Assets = 290,000+ 209,000 + 282,000 + 430,000 = 1,211,000
Closing operating Assets = 451,280+ 193,000 + 232,000 + 393,000 = 1,269,280
Annual operating Assets = (1,211,000 + 1,269,280)/2
Annual Operating Assets = 1,240,140
Company's Turnover = Sales/ Annual Operating Assets
Company's Turnover = 1,960,000/ 1,240,140
Company's Turnover = 1.58%
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