Accounting 203 Quiz # 11 Name Ever Wares is a division of a major corporation. F

Question

Accounting 203 Quiz # 11 Name Ever Wares is a division of a major corporation. Financial data for the last year is as follows: Ever Wares Balance Sheet Ending Beginning Balance Balance s 238,503 S 218,049 702,497 Inventory1,985,683 1,846,224 12,099 3,621 Long Investment-Available for Sale Securities 783,039 781,993 Cash Accounts Receivable (Net) .. 682,420 .10,593 3,902 Prepaid Insurance 2,049,950 299,000 Plant and Equipment (Net of Depreciation) .2,509,441 Land (Held for future expansion) Total Assets ,512,SAL SS913433 S 838,331 S 898,958 . 2,424,636 2,399,301 Accounts Payable Long-term Debt Common Stock ($10 par).. Paid-In Capital in excess of Par..750,000 Retained Earnings Total Liabilities and Shareholders Equity 500,000 500,000 750,000 L365.174 1,999,614 S 6,512,581 S 5,913,433 Ever Wares Income Statement $ 14,720,000 10.843.000 3,877,000 2.745,048 1,131,952 128,971 84,862 1,176,061 411.621 S 764.440 Sales Cost of Goods Sold Gross Margin Operating Expenses Gain on the sales of AFS Securities Interest Expense Net Income Before Taxes Income Tax Expense Net Income

Explanation / Answer

a.

Profit Margin = Net profit /Net sales = $ 764,440/$ 14,720,000 = 0.051932065 or 5.19 %

b.

Asset Turnover = Net sales /Average total assets = $ 14,720,000/ [($ 6,512,581 + $ 5,913,433S)/2]

                            = $ 14,720,000/ ($ 12,426,014/2)

                            = $ 14,720,000/ $ 6,213,007 = 2.369223148 or 2.37

c.

Return on Investment (ROI) = Net Profit / Average total assets = $ 764,440/$ 6,213,007

                                      = 0.123038651 or 12.3 %

d.

Average operating assets of the department = [($ 238,503 +682,420 + 1,985,683 +10,593 +3,902

+ 2,509,441) + ($ 218,049 + 702,497 + 1,846,224 + 12099 + 3,621 + 2,049,950)]/2

= $ 5,430,542 + $ 4,877,440 = $ 10,307,982/2 = $ 5,153,991

Residual income = Department’s Net operating income – (Minimum required return x Average operating assets of the department)

   Residual income = $ 1,131,952 – (15 % x $ 5,153,991)

                                 = $ 1,131,952 – (0.15 x $ 5,153,991)

                                 = $ 1,131,952 - $ 773,098.65 = $ 358,853.35

*******Answered first four questions.

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