1. Financial data for Redstone Company for last year appear below: Redstone Comp
ID: 2599823 • Letter: 1
Question
1. Financial data for Redstone Company for last year appear below: Redstone Company Balance Sheet Beginning Ending Balance Balance $120,000 $160,000 10,000 100,00 50,00 80,000 160,00 60,000 estment in talsam t (ne Land (undeveloped 50,000 60,000 otal assets 120,00 0,000 Liabilities and ow ers 30,000 $660,00 ccounts pavable Long-term debt $70,000 $90,00 500,000 500,000 wners' equuity Total liabilities and owners'0.00 60,000 Redstone Company Income Statement ales 1,222,000 099,8 122,2 ess operating ex et operating income Less interest and taxes Interest expense Tax expense Net income $60,000 0.000 42 2 he com minimum requir dividends of $32.200 last year. The Board of Directors of Redstone has set a rate of return of 25%. What was the company's residual income last year? (Hint alsam Company" and "Land (undeveloped)" should be excluded when calculating average operating assets.) A. $4,700 B. $28,200 C. $51,700 . $18,800 None of the aboveExplanation / Answer
ans)
1. Option (A) $4700
Ending Balances Beginning Balances
Cash $120,000 $160,000
Accounts receivable $110,000 $100,000
Inventory $50,000 $60,000
Plant and equipment (net) $180,000 $160,000
Total operating assets $460,000 $480,000
Average operating assets= $480,000 + $460,000 / 2 = $470,000
Margin= Net operating income / Sales
= $122,200 / $1,222,000 = 10%
Turnover=Sales / Average operating assets
= $1,222,000 / $470,000 = 2.6
ROI= Margin x Turnover
= 10% x 2.6 = 26%
Average operating assets $470,000
Net operating income(a) $122,200
Minimum required return (25% x $470,000) (b) 117,500
Residual income 4700 ( a - b)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.