Question

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	295,000		$	336,524
Accounts receivable		178,000			180,000
Inventory		275,000			222,000
Plant and equipment (net)		480,000			441,000
Investment in Cedar Company		306,000			322,000
Land (undeveloped)		273,000			273,000
Total assets	$	1,807,000		$	1,774,524
Liabilities and owners' equity:
Accounts payable	$	224,000		$	197,000
Long-term debt		824,000			824,000
Owners' equity		759,000			753,524
Total liabilities and owners' equity	$	1,807,000		$	1,774,524

Beaker Company
Income Statement
Sales				$	2,480,000
Less operating expenses					2,033,600
Net operating income					446,400
Less interest and taxes:
Interest expense	$	99,100
Tax expense		151,776			250,876
Net income				$	195,524

The company paid dividends of $201,000 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 34%. What was the company's residual income last year?

Answer 1