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 $386,120 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.

3. What was the company’s residual income last year?

Joel de Paris, Inc.
Balance Sheet Beginning
Balance Ending
Balance Assets Cash $ 139,000 $ 125,000 Accounts receivable 335,000 480,000 Inventory 563,000 483,000 Plant and equipment, net 853,000 842,000 Investment in Buisson, S.A. 394,000 434,000 Land (undeveloped) 249,000 249,000 Total assets $ 2,533,000 $ 2,613,000 Liabilities and Stockholders' Equity Accounts payable $ 389,000 $ 332,000 Long-term debt 999,000 999,000 Stockholders' equity 1,145,000 1,282,000 Total liabilities and stockholders' equity $ 2,533,000 $ 2,613,000

Explanation / Answer

1 Beginning operating assets = 2533000-394000-249000= $1890000 Ending operating assets = 2613000-434000-249000= $1930000 Average operating assets = (1890000+1930000)/2= $1910000 2 Margin = Net operating income /Sales = 825120/5157000= 16% Turnover = Sales/Average operating assets = 5157000/1910000= 2.7 Return on investment = Margin*Turnover = 16%*2.7= 43.2% 3 Residual income = 825120-(1910000*15%)= $538620

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