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 $460,120 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. (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 $ 138,000 $ 133,000 Accounts receivable 336,000 485,000 Inventory 563,000 472,000 Plant and equipment, net 813,000 800,000 Investment in Buisson, S.A. 400,000 429,000 Land (undeveloped) 252,000 247,000 Total assets $ 2,502,000 $ 2,566,000 Liabilities and Stockholders' Equity Accounts payable $ 376,000 $ 342,000 Long-term debt 991,000 991,000 Stockholders' equity 1,135,000 1,233,000 Total liabilities and stockholders' equity $ 2,502,000 $ 2,566,000 Connect e https://newconnect mheducation com ow connect html?isReg-trueBreturnUrl=https%3A%2F%2Fconnect.mhe Chapter 11 Homework G Help Save &ExSubmit; Saved Check my work Toel de Paris, Inc Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buig0n, S. Land (undeveloped) Total asaets S 138,000 S 133,000 485,000 472,000 800,00O 429,000 252,000247,000 S2, 502,000 2,566, 000 33.33 polnts 336, 000 563, 00O 813,000 400,000 Skipped eBook Liabil1ties and Stockholders Equity Accounta payable Long-term debt Stockholders equity Total l1abilities and atockholdera" equity 376,000 342,000 991,000 1,233,000 S2, 502,000 2,566,000 Print 991,000 1,135, 000 Jocl de Paris, Inc Income Statement Sales Operating expenses Net operating income Intereat and taxes: S5,236,000 4,345, 880 890,120 Intereet expense Tax expense 130,000 202,000 332, 000 Net income $ 55. 120 Prey 10f 3 : Next > Graw

Explanation / Answer

Solution: 1. Average operating assets $1,870,000 2. Margin 17.00 % Turnover 2.80 ROI 47.60 % 3. Residual income $609,620 Working Notes: 1. Beginning Ending Cash 138,000 133,000 Accounts receivable 336,000 485,000 Inventory 563,000 472,000 Plant and equipment, net 813,000 800,000 Investment in Buisson, S.A. N/A N/A Land (undeveloped) N/A N/A Operating Assets 1,850,000 1,890,000 Average operating assets for last year = (Operating assets at Beginning + Operating assets at Beginning )/2 =(1,850,000+1,890,000)/2 =$1,870,000 Notes: Investment in other than operating business is not operating assets & Land (undeveloped) is also not operating assets , hence both are excluded in our above calculation. 2. Margin Margin =Net operating Income/Sales =$890,120/$5,236,000 =0.17 =17.00% Data is used from given income statement. Turnover Turnover ratio = Sales/Average operating assets =$5,236,000/$1,870,000 =2.80 times ROI Return on investment (ROI) = Margin x Turnover =0.17 x 2.8 =0.476 =47.60 % 3. Residual Income = Net operating Income - Minimum required return Minimum required return = minimum required rate of return x Average operating assets =15% x $1,870,000 =$280,500 Residual Income = Net operating Income - Minimum required return =$890,120-$280,500 =$609,620 Please feel free to ask if anything about above solution in comment section of the question.

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