Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc

Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 138,000 $ 134,000 Accounts receivable 341,000 485,000 Inventory 564,000 479,000 Plant and equipment, net 877,000 862,000 Investment in Buisson, S.A. 394,000 432,000 Land (undeveloped) 247,000 252,000 Total assets $ 2,561,000 $ 2,644,000 Liabilities and Stockholders' Equity Accounts payable $ 390,000 $ 349,000 Long-term debt 958,000 958,000 Stockholders' equity 1,213,000 1,337,000 Total liabilities and stockholders' equity $ 2,561,000 $ 2,644,000

3 Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc Balance Sheet Beginning Balance Ending Balance 25 points AssetS Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A Land (undeveloped) Total assets $138,000 134,000 485,000 479,000 862,000 432,000 252,000 2,561,000 2,644,000 341,000 564,000 877,000 394,000 247,000 eBook Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders equity Total liabilities and stockholders' equity Print $ 390,000 349,000 958,000 1,213,000 1,337,000 $2,561,000 2,644,000 958,000 References Joel de Paris, Inc Income Statement Sales Operating expenses Net operating income Interest and taxes: 4,656,000 3,864,480 791,520 Interest expense Tax expense 116,000 204,000320000 Net income $471,520 The company paid dividends of $347,520 last year. The “Investment in Buisson, SA.," 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 (ROl) for last year. (Round "Margin", "Turnover" and "ROi" to 2 decimal places.) 3. What was the company's residual income last year?

Explanation / Answer

Solution:

Part 1 -- Calculation of Average Operating Assets for last year

Operating Assets are the assets of the organization which are acquired for use in the conduct of the ongoing operation of the business. That is why it is called operating assets. The company uses these assets in its operation.

Undeveloped Land and Long Term Investment are not considered as Operating Assets since these are not used in operation of the company.

Beginning Balance

Ending Balance

Cash

$138,000

$134,000

Accounts Receivable

$341,000

$485,000

Inventory

$564,000

$479,000

Plant and Equipment, net

$877,000

$862,000

Total Operating Assets

$1,920,000

$1,960,000

Average Operating Assets = (Beginning + Ending) / 2 = ($1,920,000 + $1,960,000)/2 = $1,940,000

Part 2 --- Margin, Turnover and ROI

Margin = Net Income / Average Operating Assets x 100 = $471,520 / $1,940,000 x 100 = 24.31%

Turnover = Sales / Average Operating Assets = $4,656,000 / 1,940,000 = 2.40

ROI = Margin x Turnover = 24.31 x 2.4 = 58.34%

Part 3 – Residual Income

Residual Income = Net Income – Minimum Required Return on Investment

= $471,520 – (Average Operating Assets x Minimum Required Return)

= $471,520 – (1,940,000*15%)

= 471,520 - $291,000

= $180,520

Note --- Cash Dividend paid is not relevant to calculate any of the above ratio.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Beginning Balance

Ending Balance

Cash

$138,000

$134,000

Accounts Receivable

$341,000

$485,000

Inventory

$564,000

$479,000

Plant and Equipment, net

$877,000

$862,000

Total Operating Assets

$1,920,000

$1,960,000

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