Financial data for Redstone Company for last year appear below: The company paid

Question

Financial data for Redstone Company for last year appear below: The company paid dividends of $152,000 last year The "Investment in Balsam Company" on the statement of financial position represents an investment in the stock of another company. Compute the company's margin, turnover, and return on investment for last year. (Round your intermediate calculations and final answers to 2 decimal places.) The Board of Directors of Redstone has set a minimum required return of 35%. What was the company's residual income last year? (Round your intermediate calculations and final answers to 2 decimal places.)

Explanation / Answer

a. Operating assets do not include investment in other companies or in undeveloped land.

Average Operating Asset = $1,177,000+$1,240,000/2 = $1,208,550

Margin = Net Operating Income/Sales= $488,000/$2440,000 =20%

Turnover = Sale/ Average Operating Income =$2440,000/$1208,550 = 2.02

ROI =Margin * Turnover = 20%*2.02 = 40.38%

b. Residual Income is $65,008

Beginning Balance $ Ending Balance$ Cash 271,000 326,100 Account Receivable 168,000 198,000 Inventory 248,000 292,000 Plant and Equipment (net) 490,000 424,000 Total Operating Assets 1,177,000 1,240,100

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