Financial data for Redstone Company for last year appear below: Redstone Company
ID: 2489233 • 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 Accounts receivable Inventory Plant and equipment (net) Investment in Balsam Company Land (undeveloped) $ 256,000 144,000 310,000 492,000 301,000 280,000 231,240 192,000 240,000 445,000 286,000 280,000 Total assets $1,783,000 $1,674,240 Liabilities and owners' equity: Accounts payable Long-term debt Owners' equity $ 214,000 238,000 810,000 626,240 810,000 759,000 Total liabilities and owners' equity $1,783,000 $1,674,240Explanation / Answer
a); Margin = Net Operating Income/sales = $206,000/2,060,000 x 100 = 10%
Turnover = Sales/Average Operating Assets = 2,060,000/1,155,120 = 1.78
Return on Investment = Margin x Turnover = 10% x 1,78 = 17.8%
Working Note:
Calculation of Average operting assets which does not include investment in another comapany and undeveloped land.
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Beg. balance Ending Balance
Cash 256,000 231,240
Accounts receivables 144,000 192,000
Inventory 310,000 240,000
Plant & Equipment 492,000 445,000
Total operating assets 1,202,000 1,108,240
Averge Operating assets = 1,202,000 + 1,108,240/2 = 1,155,120
b) Net Operating Income = $206,000
Less: Minimum required return @15% (15% of 1,155,120) = 173,268
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