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 $ 125,000 336,000 565,000 834,000 407,000 246,000 $ 2,513,000 $ 135,000 475,000 475,000 815,000 428,000 245,000 $2,573,000 $ 384,000 1,033,000 1,096,000 $ 2,513,000 $ 350,000 1,033,000 1,190,000 $2,573,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 125,000 Tax expense 200,000 Net income $ 4,888,000 4,057,040 830,960 325,000 505,960 $

Answer 1

	Beginning balance	Ending balance
cash	125000	135000
Accounts receivables	336000	475000
Inventory	565000	475000
Plant and equipment, net	834000	815000
Operating assets	1860000	1900000

Note : Investments in Buisson, S.A. and land (undeveloped) are not an operating assets as they do not contribute to the operating activities of the company.

1.	Average operating assets = ( Beginning operating assets + Ending operating assets ) / 2 = ( 1860000 + 1900000 ) / 2	1880000
2.	Margin = Net operating income / Sales = 830960 / 4888000	17.00%
	Turnover = Sales / Average operating assets = 4888000 / 1880000	2.60
	Return on investment (ROI) = Net operating income / Average operating assets = 830960 / 1880000	44.20%
3.	Residual income = Net operating income - ( Minimum Required rate of return * Average operating assets ) = 830960 - ( 15% * 1880000 )	548960