Question

Question 1

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	256,000		$	231,240
Accounts receivable		144,000			192,000
Inventory		310,000			240,000
Plant and equipment (net)		492,000			445,000
Investment in Cedar Company		301,000			286,000
Land (undeveloped)		280,000			280,000
Total assets	$	1,783,000		$	1,674,240
Liabilities and owners' equity:
Accounts payable	$	214,000		$	238,000
Long-term debt		810,000			810,000
Owners' equity		759,000			626,240
Total liabilities and owners' equity	$	1,783,000		$	1,674,240

Beaker Company
Income Statement
Sales				$	2,060,000
Less operating expenses					1,854,000
Net operating income					206,000
Less interest and taxes:
Interest expense	$	96,900
Tax expense		63,860			160,760
Net income				$	45,240

The company paid dividends of  $178,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Additionally; The Board of Directors of Beaker Company has set a minimum required return of 15%.

Please calculate the following:

Average Operating Assets (rounded to the nearest whole dollar, with commas)	$
Operating Income (rounded to the nearest whole dollar, with commas)	$
Sales (rounded to the nearest whole dollar with commas)	$
Margin (rounded to the 2 decimal places)	%
Turnover (rounded to 2 decimal places)
Return On Investment (rounded to 2 decimal places)	%
Residual Income (rounded to the nearest whole dollar, with commas)	$

Answer 1

Average operating assets = (beginning operating assets + ending operating assets)/2

Beginning operating assets

Cash	256,000
Accounts receivable	144,000
Inventory	310,000
Plant and equipment (net)	492,000
Total beginning operating assets	1202000

Ending operating assets

Cash	231,240
Accounts receivable	192,000
Inventory	240,000
Plant and equipment (net)	445,000
Total beginning operating assets	1108240

Average operating assets = (1202000+1108240)/2 = 1155120

Margin = net operating income / sales = 206000/2060000 = 10%

Turnover = sales/ average operating assets = 2060000/1155120 = 1.78

ROI = margin * turnover = 10%*1.78 = 17.8%

Residual income = net operating income – return on average operating assets = 206000-(1155120*15%) = $32732

Average Operating Assets (rounded to the nearest whole dollar, with commas)	$1,155,120
Operating Income (rounded to the nearest whole dollar, with commas)	$206,000
Sales (rounded to the nearest whole dollar with commas)	$2,060,000
Margin (rounded to the 2 decimal places)	10.00%
Turnover (rounded to 2 decimal places)	1.78
Return On Investment (rounded to 2 decimal places)	17.80%
Residual Income (rounded to the nearest whole dollar, with commas)	$32,732