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 | $ | 137,000 | $ | 140,000 | ||
Accounts receivable | 337,000 | 480,000 | ||||
Inventory | 561,000 | 474,000 | ||||
Plant and equipment, net | 795,000 | 776,000 | ||||
Investment in Buisson, S.A. | 403,000 | 431,000 | ||||
Land (undeveloped) | 245,000 | 253,000 | ||||
Total assets | $ | 2,478,000 | $ | 2,554,000 | ||
Liabilities and Stockholders' Equity | ||||||
Accounts payable | $ | 383,000 | $ | 346,000 | ||
Long-term debt | 970,000 | 970,000 | ||||
Stockholders' equity | 1,125,000 | 1,238,000 | ||||
Total liabilities and stockholders' equity | $ | 2,478,000 | $ | 2,554,000 | ||
Joel de Paris, Inc. Income Statement |
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Sales | $ | 4,625,000 | |||||||
Operating expenses | 3,931,250 | ||||||||
Net operating income | 693,750 | ||||||||
Interest and taxes: | |||||||||
Interest expense | $ | 114,000 | |||||||
Tax expense | 193,000 | 307,000 | |||||||
Net income | $ | 386,750 | |||||||
The company paid dividends of $273,750 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?
1. | ||||
Calculation of average operating assets for last year. | ||||
Average operating assets = (Beginning operating assets + Ending operating assets)/2 | ||||
Beginning balance | Ending balance | |||
Cash | $137,000 | $140,000 | ||
Accounts receivable | $337,000 | $480,000 | ||
Inventory | $561,000 | $474,000 | ||
Plant and equipment, net | $795,000 | $776,000 | ||
Total operating assets | $1,830,000 | $1,870,000 | ||
Average operating assets | (1,830,000+1,870,000)/2 | |||
Average operating assets | $1,850,000 | |||
Thus, company's average operating assets for last year is $1,850,000 | ||||
2. | ||||
Operating margin is the percentage of operating income earned by company on sales made. | ||||
Calculation of company's margin for last year. | ||||
Company's margin | Net operating income/Sales revenue | |||
Company's margin | $693,750/$4,625,000 | |||
Company's margin | 15.00% | |||
Thus, company's margin for last year is 15%. | ||||
Operating turnover indicates efficiency with which operating assets are used to generate sales revenue. | ||||
Calculation of company’s turnover for last year. | ||||
Turnover | Sales revenue/Average operating assets | |||
Turnover | $4,625,000/$1,850,000 | |||
Turnover | 2.50 | |||
Thus, company's turnover for last year is 2.50. | ||||
Return on investment is percentage of operating income earned on investment made in operating assets. | ||||
Calculation of return on investment for last year. | ||||
Return on investment | Profit margin*Operating asset turnover | |||
Return on investment | 15%*2.50 | |||
Return on investment | 37.50% | |||
Thus, return on investment for last year is 37.50% | ||||
3. | ||||
Residual income is excess income earned by company over its expected operating income | ||||
Calculation of residual income for last year | ||||
Residual income | Actual income - Expected income | |||
Actual operating income | $693,750 | |||
Expected income | $277,500 | (1,850,000*15%) | ||
Residual income | $416,250 | |||
Thus, residual income for last year is $416,250. |
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 $ 126,000 $ 137,000 Accounts receivable 332,000 474,000 Inventory 561,000 490,000 Plant and equipment, net 861,000 819,000 Investment in Buisson, S.A. 395,000 432,000 Land (undeveloped) 251,000 245,000 Total assets $ 2,526,000 $ 2,597,000 Liabilities and Stockholders' Equity Accounts payable $ 390,000 $ 335,000 Long-term debt 969,000 969,000 Stockholders' equity 1,167,000 1,293,000 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 $ 126,000 $ 130,000 Accounts receivable 348,000 473,000 Inventory 567,000 482,000 Plant and equipment, net 819,000 815,000 Investment in Buisson, S.A. 402,000 430,000 Land (undeveloped) 250,000 251,000 Total assets $ 2,512,000 $ 2,581,000 Liabilities and Stockholders' Equity Accounts payable $ 385,000 $ 337,000 Long-term debt 970,000 970,000 Stockholders' equity 1,157,000 1,274,000 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 $ 128,000 Accounts receivable 348,000 471,000 Inventory 561,000 485,000 Plant and equipment, net 836,000 836,000 Investment in Buisson, S.A. 403,000 428,000 Land (undeveloped) 251,000 249,000 Total assets $ 2,534,000 $ 2,597,000 Liabilities and Stockholders' Equity Accounts payable $ 377,000 $ 339,000 Long-term debt 1,024,000 1,024,000 Stockholders' equity 1,133,000 1,234,000 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 $ 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 $ 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 $...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Ine. Balance Sheet Beginning Balance Ending Balance Assets 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 139,000 339,000 573,000 829,000 404.000 248,000 $ 2,532,000 134,000 475,000 472.000 839,000 434,000 253,000 $2.607.000 381,000 1,029,000 1, 122,000 $2,532,000 $ 340,000 1,029,000 1,238,000 $2,607,000 Joel de Paris,...
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 $ 128,000 Accounts receivable 348,000 471,000 Inventory 561,000 485,000 Plant and equipment, net 836,000 836,000 Investment in Buisson, S.A. 403,000 428,000 Land (undeveloped) 251,000 249,000 Total assets $ 2,534,000 $ 2,597,000 Liabilities and Stockholders' Equity Accounts payable $ 377,000 $ 339,000 Long-term debt 1,024,000 1,024,000 Stockholders' equity 1,133,000 1,234,000 Total liabilities and stockholders' equity $...