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 $179,500 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 $ 135,000 $ 125,000 Accounts receivable 343,000 482,000 Inventory 574,000 476,000 Plant and equipment, net 788,000 797,000 Investment in Buisson, S.A. 393,000 433,000 Land (undeveloped) 252,000 250,000 Total assets $ 2,485,000 $ 2,563,000 Liabilities and Stockholders' Equity Accounts payable $ 382,000 $ 341,000 Long-term debt 1,031,000 1,031,000 Stockholders' equity 1,072,000 1,191,000 Total liabilities and stockholders' equity $ 2,485,000 $ 2,563,000

Explanation / Answer

Ans.1 Average operating assets = (Beginning total assets + Ending total assets) / 2 (2485000 + 2563000) / 2 2524000 Ans.2 Margin   = Net operating income / Sales * 100 604500 / 4650000 * 100 13% Turnover = Sales / Average operating assets 4650000 / 2524000 1.84 times Return on investment = Net operating income / Average operating assets * 100 604500 / 2524000 * 100 23.95% Ans.3 Residual income = Net operating income - (Average operating assets * minimum required rate of return) 604500 - (2524000 * 15%) 604500 - 378600 225900

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