Question

In: Accounting

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

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

Joel de Paris, Inc.
Balance Sheet
Beginning
Balance
Ending
Balance
Assets
Cash $ 126,000 $ 128,000
Accounts receivable 338,000 480,000
Inventory 561,000 485,000
Plant and equipment, net 845,000 817,000
Investment in Buisson, S.A. 392,000 434,000
Land (undeveloped) 255,000 252,000
Total assets $ 2,517,000 $ 2,596,000
Liabilities and Stockholders' Equity
Accounts payable $ 382,000 $ 344,000
Long-term debt 1,016,000 1,016,000
Stockholders' equity 1,119,000 1,236,000
Total liabilities and stockholders' equity $ 2,517,000 $ 2,596,000


Joel de Paris, Inc.
Income Statement
Sales $ 5,292,000
Operating expenses 4,498,200
Net operating income 793,800
Interest and taxes:
Interest expense $ 125,000
Tax expense 192,000 317,000
Net income $ 476,800


The company paid dividends of $359,800 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. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)

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

1. Average operating assets
2. Margin %
Turnover
ROI %
3. Residual income

Solutions

Expert Solution

1. Compute the company's average operating assets for last year.

Beginning Balances

Ending Balances

Cash

126000

128000

Accounts receivable

338000

480000

Inventory

561000

485000

Plant and equipment (net)

845000

817000

Total operating assets

1870000

1910000

Average operating assets = ($1870000 + $1910000) / 2

= $18,90,000

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year

Margin        = Net operating income / Sales

                    = $793800 / 5,292,000

                   = 15%

Turnover              =Sales / Average operating assets

                             = 5,292,000 / 1890000

                             = 2.80

ROI = Margin × Turnover= 15% x 2.80 = 42%

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

Net operating income                                 $793800   

Less : Minimum required return                 $283500

($1890000 x 15%)

Residual income                                        $5,10,300

1

Average operating assets

$18,90,000

2

Margin

15%

Turnover

2.80

ROI

42%

3

Residual income

$5,10,300


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