Financial data for Joel de Paris, Inc., for last year follow:
Joel de Paris, Inc. Balance Sheet |
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Beginning Balance |
Ending Balance |
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Assets | ||||||
Cash | $ | 129,000 | $ | 136,000 | ||
Accounts receivable | 342,000 | 473,000 | ||||
Inventory | 577,000 | 486,000 | ||||
Plant and equipment, net | 832,000 | 825,000 | ||||
Investment in Buisson, S.A. | 390,000 | 433,000 | ||||
Land (undeveloped) | 253,000 | 252,000 | ||||
Total assets | $ | 2,523,000 | $ | 2,605,000 | ||
Liabilities and Stockholders' Equity | ||||||
Accounts payable | $ | 388,000 | $ | 347,000 | ||
Long-term debt | 1,038,000 | 1,038,000 | ||||
Stockholders' equity | 1,097,000 | 1,220,000 | ||||
Total liabilities and stockholders' equity | $ | 2,523,000 | $ | 2,605,000 | ||
Joel de Paris, Inc. Income Statement |
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Sales | $ | 4,750,000 | |||||||
Operating expenses | 4,085,000 | ||||||||
Net operating income | 665,000 | ||||||||
Interest and taxes: | |||||||||
Interest expense | $ | 114,000 | |||||||
Tax expense | 195,000 | 309,000 | |||||||
Net income | $ | 356,000 | |||||||
The company paid dividends of $233,000 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?
Ans. | Assets | Beginning balance | Ending balance | ||
Cash | $129,000 | $136,000 | |||
Accounts receivables | $342,000 | $473,000 | |||
Inventory | $577,000 | $486,000 | |||
Plant and equipment | $832,000 | $825,000 | |||
Total operating assets | $1,880,000 | $1,920,000 | |||
*Undeveloped land and investment in other company are not included in operating assets. | |||||
Ans.1 | Average operating assets = (Beginning operating assets + Ending operating assets) / 2 | ||||
($1,880,000 + $1,920,000) / 2 | |||||
$3,800,000 / 2 | |||||
$1,900,000 | |||||
Ans.2 a | Margin = Net operating income / Sales * 100 | ||||
$665,000 / $4,750,000 * 100 | |||||
14.00% | |||||
Ans.2 b | Turnover = Sales / Average operating assets | ||||
$4,750,000 / $1,900,000 | |||||
2.50 | times | ||||
Ans. 2 c | Return on investment (ROI) = Turnover * Margin | ||||
2.50 * 14% | |||||
0.35 or 35% | |||||
Ans. 3 | Residual income = Operating income - Minimum required income | ||||
$665,000 - $285,000 | |||||
$380,000 | |||||
*Minimum required income = Average operating assets * Desired rate of return | |||||
$1,900,000 * 15% | |||||
$285,000 | |||||
*Residual income is the difference between Net operating income and minimum required income, and the | |||||
minimum required income is the product of average operating assets and desired rate of return. | |||||
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 $ 137,000 $ 128,000 Accounts receivable 334,000 480,000 Inventory 578,000 480,000 Plant and equipment, net 881,000 882,000 Investment in Buisson, S.A. 398,000 430,000 Land (undeveloped) 247,000 252,000 Total assets $ 2,575,000 $ 2,652,000 Liabilities and Stockholders' Equity Accounts payable $ 384,000 $ 340,000 Long-term debt 984,000 984,000 Stockholders' equity 1,207,000 1,328,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 129,000 $ 132,000 Accounts receivable 340,000 479,000 Inventory 577,000 476,000 Plant and equipment, net 794,000 793,000 Investment in Buisson, S.A. 401,000 427,000 Land (undeveloped) 255,000 249,000 Total assets $ 2,496,000 $ 2,556,000 Liabilities and Stockholders' Equity Accounts payable $ 389,000 $ 344,000 Long-term debt 971,000 971,000 Stockholders' equity 1,136,000 1,241,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 127,000 $ 136,000 Accounts receivable 349,000 484,000 Inventory 569,000 490,000 Plant and equipment, net 835,000 810,000 Investment in Buisson, S.A. 394,000 433,000 Land (undeveloped) 251,000 249,000 Total assets $ 2,525,000 $ 2,602,000 Liabilities and Stockholders' Equity Accounts payable $ 387,000 $ 346,000 Long-term debt 952,000 952,000 Stockholders' equity 1,186,000 1,304,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 135,000 $ 136,000 Accounts receivable 337,000 475,000 Inventory 573,000 487,000 Plant and equipment, net 865,000 852,000 Investment in Buisson, S.A. 401,000 426,000 Land (undeveloped) 250,000 253,000 Total assets $ 2,561,000 $ 2,629,000 Liabilities and Stockholders' Equity Accounts payable $ 376,000 $ 337,000 Long-term debt 986,000 986,000 Stockholders' equity 1,199,000 1,306,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 139,000 $ 132,000 Accounts receivable 344,000 484,000 Inventory 566,000 481,000 Plant and equipment, net 851,000 843,000 Investment in Buisson, S.A. 393,000 430,000 Land (undeveloped) 251,000 246,000 Total assets $ 2,544,000 $ 2,616,000 Liabilities and Stockholders' Equity Accounts payable $ 375,000 $ 340,000 Long-term debt 963,000 963,000 Stockholders' equity 1,206,000 1,313,000 Total liabilities and stockholders' equity $...
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 $ 139,000 Accounts receivable 344,000 486,000 Inventory 565,000 473,000 Plant and equipment, net 821,000 802,000 Investment in Buisson, S.A. 401,000 431,000 Land (undeveloped) 249,000 250,000 Total assets $ 2,510,000 $ 2,581,000 Liabilities and Stockholders' Equity Accounts payable $ 384,000 $ 346,000 Long-term debt 1,008,000 1,008,000 Stockholders' equity 1,118,000 1,227,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 128,000 $ 127,000 Accounts receivable 333,000 476,000 Inventory 563,000 479,000 Plant and equipment, net 816,000 798,000 Investment in Buisson, S.A. 395,000 429,000 Land (undeveloped) 252,000 245,000 Total assets $ 2,487,000 $ 2,554,000 Liabilities and Stockholders' Equity Accounts payable $ 373,000 $ 339,000 Long-term debt 1,016,000 1,016,000 Stockholders' equity 1,098,000 1,199,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 136,000 $ 133,000 Accounts receivable 340,000 479,000 Inventory 567,000 485,000 Plant and equipment, net 847,000 833,000 Investment in Buisson, S.A. 402,000 427,000 Land (undeveloped) 245,000 253,000 Total assets $ 2,537,000 $ 2,610,000 Liabilities and Stockholders' Equity Accounts payable $ 374,000 $ 343,000 Long-term debt 1,024,000 1,024,000 Stockholders' equity 1,139,000 1,243,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 139,000 $ 131,000 Accounts receivable 349,000 475,000 Inventory 576,000 473,000 Plant and equipment, net 796,000 821,000 Investment in Buisson, S.A. 393,000 430,000 Land (undeveloped) 251,000 246,000 Total assets $ 2,504,000 $ 2,576,000 Liabilities and Stockholders' Equity Accounts payable $ 381,000 $ 335,000 Long-term debt 1,049,000 1,049,000 Stockholders' equity 1,074,000 1,192,000 Total liabilities and stockholders' equity $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 125,000 $ 129,000 Accounts receivable 348,000 478,000 Inventory 574,000 488,000 Plant and equipment, net 853,000 845,000 Investment in Buisson, S.A. 393,000 425,000 Land (undeveloped) 251,000 248,000 Total assets $ 2,544,000 $ 2,613,000 Liabilities and Stockholders' Equity Accounts payable $ 380,000 $ 336,000 Long-term debt 987,000 987,000 Stockholders' equity 1,177,000 1,290,000 Total liabilities and stockholders' equity $...