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 $61,200 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 $ 139,000 $ 132,000 Accounts receivable 350,000 489,000 Inventory 566,000 486,000 Plant and equipment, net 795,000 783,000 Investment in Buisson, S.A. 398,000 427,000 Land (undeveloped) 253,000 252,000 Total assets $ 2,501,000 $ 2,569,000 Liabilities and Stockholders' Equity Accounts payable $ 380,000 $ 348,000 Long-term debt 1,012,000 1,012,000 Stockholders' equity 1,109,000 1,209,000 Total liabilities and stockholders' equity $ 2,501,000 $ 2,569,000

Explanation / Answer

1 Beginning operating assets = 2501000-398000-253000= 1850000 Ending operating assets = 2569000-427000-252000= 1890000 Average operating assets = (1850000+1890000)/2= 1870000 2 Margin = net operating income/Sales = 486200/3740000= 13% Turnover = Sales/Average operating assets = 3740000/1870000= 2 ROI = Margin*Turnover = 13%*2= 26% 3 Residual income = 486200-(1870000*15%)= 205700

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