Question

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		$	136,000
Accounts receivable		339,000			478,000
Inventory		561,000			483,000
Plant and equipment, net		892,000			863,000
Investment in Buisson, S.A.		405,000			431,000
Land (undeveloped)		251,000			245,000
Total assets	$	2,576,000		$	2,636,000
Liabilities and Stockholders' Equity
Accounts payable	$	371,000		$	334,000
Long-term debt		983,000			983,000
Stockholders' equity		1,222,000			1,319,000
Total liabilities and stockholders' equity	$	2,576,000		$	2,636,000

Joel de Paris, Inc. Income Statement
Sales					$	4,462,000
Operating expenses						3,881,940
Net operating income						580,060
Interest and taxes:
Interest expense	$	113,000
Tax expense		206,000				319,000
Net income					$	261,060

The company paid dividends of $164,060 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. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

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

Answer 1

Average operating assets = [(2576000-251000-405000)+(2636000-245000-431,000)]/2 = 1,940,000
Margin = Net operating income/Sales = 580060/4462000 = 13% Turnover = Sales/Average operating assets = 4462000/1940000 = 2.3 Roi = Margin*Turnover = 13*2.3 = 29.9%
Residual income = Net operating income - Required return = 580,060-(1,940,000*15%) = 289,060