Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	130,000		$	125,000
Accounts receivable		346,000			486,000
Inventory		572,000			472,000
Plant and equipment, net		832,000			837,000
Investment in Buisson, S.A.		404,000			429,000
Land (undeveloped)		250,000			253,000
Total assets	$	2,534,000		$	2,602,000
Liabilities and Stockholders' Equity
Accounts payable	$	379,000		$	331,000
Long-term debt		998,000			998,000
Stockholders' equity		1,157,000			1,273,000
Total liabilities and stockholders' equity	$	2,534,000		$	2,602,000

Joel de Paris, Inc. Income Statement
Sales					$	4,940,000
Operating expenses						4,297,800
Net operating income						642,200
Interest and taxes:
Interest expense	$	114,000
Tax expense		205,000				319,000
Net income					$	323,200

The company paid dividends of $207,200 last year. The “Investment in Buisson, S.A.,” 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 (ROI) for last year. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

3. What was the company’s residual income last year?

Answer 1

	Beginning balance	Ending balance
cash	130000	125000
Accounts receivables	346000	486000
Inventory	572000	472000
Plant and equipment, net	832000	837000
Operating assets	1880000	1920000

Note : Investments in Buisson, S.A. and land (undeveloped) are not an operating assets as they do not contribute to the operating activities of the company.

1.	Average operating assets = ( Beginning operating assets + Ending operating assets ) / 2 = ( 1880000 + 1920000 ) / 2	1900000
2.	Margin = Net operating income / Sales = 642200 / 4940000	13.00%
	Turnover = Sales / Average operating assets = 4940000 / 1900000	2.60
	Return on investment (ROI) = Net operating income / Average operating assets = 642200 / 1900000	33.80%
3.	Residual income = Net operating income - ( Required rate of return * Average operating assets ) = 642200 - ( 15% * 1900000 )	357200