Financial data for Joel de Paris, Inc., for last year follow: The company paid d

Question

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

The company paid dividends of $28,600 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?

Joel de Paris, Inc.
Balance Sheet Beginning
Balance Ending
Balance Assets Cash $ 127,000 $ 139,000 Accounts receivable 340,000 484,000 Inventory 568,000 490,000 Plant and equipment, net 835,000 797,000 Investment in Buisson, S.A. 398,000 426,000 Land (undeveloped) 252,000 246,000 Total assets $ 2,520,000 $ 2,582,000 Liabilities and Stockholders' Equity Accounts payable $ 383,000 $ 331,000 Long-term debt 1,016,000 1,016,000 Stockholders' equity 1,121,000 1,235,000 Total liabilities and stockholders' equity $ 2,520,000 $ 2,582,000

Explanation / Answer

1 Beginning operating assets=2520000-398000-252000= $1870000 Ending operating assets=2582000-426000-246000= $1910000 Average operating assets=(1870000+1910000)/2 = $1890000 2 Margin = Net operating income / Sales = 453600/3780000= 12% Turnover = Sales/Average operating assets = 3780000/1890000= 2 Return on investment (ROI) = Margin*Turnover = 12%*2 = 24% 3 Residual income = 453600-(1890000*15%)= $170100

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