Question

Financial data for Beaker Company for last year appear below: Beaker Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash Accounts receivable Inventory Plant and equipment (net) Investment in Cedar Company Land (undeveloped) Total assets $ 290,000 209,000 282,000 430,000 304,000 241,000 $1,756,000 $ 451,280 193,000 232,000 393,000 255,000 241,000 $1,765,280 Liabilities and owners' equity: Accounts payable Long-term debt Owners' equity Total liabilities and owners' equity $ 208,000 824,000 724,000 $1,756,000 $ 175,000 824,000 766,280 $1,765,280 Beaker Company Income Statement Sales Less operating expenses Net operating income Less interest and taxes: Interest expense $ 103,600 Tax expense 141,120 Net income $1,960,000 1,519,000 441,000 244,720 196,280 $ The company paid dividends of $154,000 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 30%. What was the company's residual income last year?
Financial data for Beaker Company for last year appear below: Beaker Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash $ 290,000 $ 451,280 Accounts receivable 209,000 193,000 Inventory 282,000 232,000 Plant and equipment (net) 430,000 393,000 Investment in Cedar Company 304,000 255,000 Land (undeveloped) 241,000 241,000 Total assets $ 1,756,000 $ 1,765,280 Liabilities and owners' equity: Accounts payable $ 208,000 $ 175,000 Long-term debt 824,000 824,000 Owners' equity 724,000 766,280 Total liabilities and owners' equity $ 1,756,000 $ 1,765,280 Beaker Company Income Statement Sales $ 1,960,000 Less operating expenses 1,519,000 Net operating income 441,000 Less interest and taxes: Interest expense $ 103,600 Tax expense 141,120 244,720 Net income $ 196,280 The company paid dividends of $154,000 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 30%. What was the company's residual income last year?

Answer 1

Calculation of Average operating Assets
	Beginning Balance	Ending Balance
Cash	$2,90,000	$4,51,280
Accounts Receivable	$2,09,000	$1,93,000
Inventory	$2,82,000	$2,32,000
Plant and equipment	$4,30,000	$3,93,000
Total Operating Assets	$12,11,000	$12,69,280
Average operating Assets[($1,211,000+$1,269,280)/2]	$12,40,140
Net Operating Income	$4,41,000
Sales	$19,60,000
Margin =Net operating income / Net Sales	22.50%
Turnover =Net sales / Average Operating Assets	1.58
ROI =Margin*Turnover	35.55%
Residual income/(Loss) =Net operating income -(Average Operating assets*30%)	$68,958