Question

Problem 11-15 Return on Investment (ROI) and Residual Income (LO11-1, LO11-2) Financial data for Joel de Paris, Inc., for last year follow. 35 points Joel de Paris, Ine. Balance Sheet Beginning Balance Ending Balance eBook 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 Print 132,000 333,000 566,000 879,000 407,000 254,000 $ 2,571,000 137,000 476,000 489,000 848,000 428,000 245,000 $ 2,623,000 References $ 384,000 1,043,000 1,144,000 $ 2,571,000 $ 332,000 1,043,000 1,248,000 $ 2,623,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 119,000 Tax expense 210,000 Net income $ 5,018,000 4,315,480 702,520 328,000 374,520 $

Answer 1

Calaculation of Requirements:

1. Average Operating Assets

= (Beginning opetating assets + Ending operating assets)÷2

= ($1910000+$1950000) ÷ 2

= $3860000 ÷ 2

= $1930000

Operating assets:

	Beginning	Ending
Total Assets	$2571000	$2623000
Less: Undeveloped land	($254000)	($245000)
Less: investment in Buisson, S.A	($407000)	($428000)
Oerating aseets	$1910000	$1950000

2.

(a) Margin

= Net Operating income ÷ Net sales

= $702520 ÷ $5018000

= 0.14

= 14%

(b) Turnover

= Net sales ÷ Average operating assets

= $5018000 ÷ $1930000

= 2.6 times

(c) ROI (Return on investment)

= Margin × Turnover

= 14% × 2.6

= 36.4%

3. Residual income

= Net operating assets - Minimum required return

= $702520 - (Average operating assets × ROI%)

= $702520 - ($1930000 × 36.4%)

= $702520 - $702520

= $0

_____×_____

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