Question

In: Accounting

Financial data for Beaker Company for last year appear below: Beaker Company Statements of Financial Position...

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
Beginning Balance Ending Balance
Assets:
Cash $ 346,000 $ 324,792
Accounts receivable 202,000 159,000
Inventory 298,000 299,000
Plant and equipment (net) 463,000 455,000
Investment in Cedar Company 318,000 293,000
Land (undeveloped) 237,000 237,000
Total assets $ 1,864,000 $ 1,767,792
Liabilities and owners' equity:
Accounts payable $ 249,000 $ 228,000
Long-term debt 855,000 855,000
Owners' equity 760,000 684,792
Total liabilities and owners' equity $ 1,864,000 $ 1,767,792
Beaker Company
Income Statement
Sales $ 1,790,000
Less operating expenses 1,440,950
Net operating income 349,050
Less interest and taxes:
Interest expense $ 98,600
Tax expense 125,658 224,258
Net income $ 124,792

The company paid dividends of $200,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Beaker Company has set a minimum required return of 25%. What was the company's residual income last year?

Given the following data:

Average operating assets $ 1,080,000
Total liabilities $ 162,000
Sales $ 540,000
Contribution margin $ 297,000
Net operating income $ 86,400

Return on investment (ROI) is:

Multiple Choice

  • 16.0%

  • 8.0%

  • 55.0%

  • 27.5%

Solutions

Expert Solution

1) Margin = net operating income/sales
Turnover = sales/average operating assets
ROI          = margin * turnover
Margin 19.5%
turnover 1.41
ROI 27.4%
total operating assets don't include investments in other companies or in undeveloped
land
ending Beginning
balances balances
Cash 324,792 346,000
account receivable 159,000 202,000
inventory 299,000 298,000
plant and equipment,net 455,000 463,000
total Assets 1,237,792 1,309,000
Average operating assets = ( ending balances + beginning balances )/2
(1237792/1309000)
1273396
2) Net operating income 349,050
minimum required return 25%
residual income 30701
Residual income =net operating income - (average operating assets *min required return)
Return on investment
86400/1,080,000
8% answer

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