Financial data for Redstone Company for last year appear below: Redstone Company

Question

Financial data for Redstone Company for last year appear below: Redstone Company Statements of Financial Position Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment (net) Investment in Balsam Company Land (undeveloped) $ 263,000 31,164 215,000 266,000 473,000 293,000 497,000 126,000 255,000 466,000 221,000 497,000 Total assets $1,828,000 $1,775,164 Liabilities and owners' equity Accounts payable Long-term debt Owners' equity $ 164,000 $228,000 884,000 663,164 884,000 780,000 Total liabilities and owners' equity $1,828,000 $1,775,164 Redstone Company Income statement Sales Less operating expenses $2,040,000 1,795,200 244,800 Net operating income Less interest and taxes $100,300 78,336 Interest expense Tax expense 178,636 Net income $ 66,164

Explanation / Answer

Beginning operating assets=1828000-221000-497000= 1110000 Ending operating assets=1775164-293000-497000= 985164 Average operating assets=(1110000+985164)/2= 1047582 1 Company’s margin=Net operating income/Sales=244800/2040000= 12.00% Turnover = Sales/Average operating assets = 2040000/1047582= 1.95 ROI = Margin*Turnover = 12%*1.95= 23.40% 2 Residual income =244800-(1047582*20%)= 35283.60

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