Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 140,000 346,000 563,000 811,000 403,000 251,000 $ 2,514,000 $ 132,000 482,000 488,000 798,000 430,000 248,000 $2,578,000 $ 383,000 1,000,000 1,131,000 $ 2,514,000 $ 340,000 1,000,000 1,238,000 $ 2,578,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 129,000 Tax expense 191,000 Net income $ 3,948,000 3,355,800 592,200 320,000 272,200 $ The company paid dividends of $165,200 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. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.) 3. What was the company's residual income last year?

I would appreciate a breakdown of how to obtain the correct answers for future assignments. Thank you in advance.

Answer 1

Average operating assets = [(2,514,000-251,000-403,000)+(2,578,000-248,000-430,000)]/2 = 1,880,000

Margin = Net operating income/sales = 592,200/3,948,000 = 15% Turnover = Sales/Average operating assets = 3,948,000/1,880,000 = 2.1 ROI = Margin * Turnover = 15*2.1 = 31.5%

Residual income = Net operating income - required return = 592,200 - (1,880,000*15%) = 310,200