ANSWER : -
1) RESIDUAL INCOME =
CONTROLLABLE MARGIN ( - ) ( REQUIRED RATE OF RETURN X AVERAGE OPERATING ASSETS )
2) Controllable Margin = Sales ( - ) Operating Expenses
= $ 40,50,000 ( - ) $ 36,40,000
= $ 4,10,000
3) Required Rate of Return = 8%
4) Average Operating Assets :
Begining Closing
Balance Balance
Accounts Receivable $ 4,50,000 $ 5,30,000
Inventory $ 3,20,000 $ 3,80,000
Plant and Equipment $ 6,80,000 $ 6,60,000
Total $ 14,50,000 $ 15,70,000
Accounts payable $ 3,60,000 $ 3,10,0000
NET OPERATING ASSETS $ 10,90,000 $ 12,60,000
Average Opearting Assets = Begining Balance + Closing Balance
2
= $ 10,90,000 + $ 12,60,000 = $ 23,50,000
2 2
= $ 11,75,000
5) RESIDUAL INCOME =
= CONTROLLABLE MARGIN ( - ) ( REQUIRED RATE OF RETURN X AVERAGE OPERATING ASSETS
= $ 4,10,000 ( - ) ( 8% X $ 11,75,000 )
= $ 4,10,000 ( - ) $ 94,000
= $ 3,16,000
Note : -
1) Residual Income is calculated on basis of Average of Net Operating Assets
2) Land Underdeveloped considered as non operating assets
3) Cash is non operating assets
4) Dividend paid last year not consider for valuation
5) Investment in ABC, INC. is a non operating asset
Financial data for Guyer Corporation, for last year follow: Guyer Corporation Balance Sheet Beginning Ending Balance...
Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 140,000 $ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 620,000 Investment in Buisson, S.A. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets $ 2,020,000 $ 2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 $ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 290,000 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 $ 140,000 $ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 620,000 Investment in Buisson, S.A. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets $ 2,020,000 $ 2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 $ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 290,000 Total liabilities and stockholders' equity $...
Ending Balance Joel de Paris, Inc. Balance Sheet Beginning Balance Assets Cash $ 140,000 Accounts receivable 450,000 Inventory 320,000 Plant and equipment, net 680,000 Investment in Buisson, S.A. 250,000 Land (undeveloped) 180,000 Total assets $2,020,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 Long-term debt 1,500,000 Stockholders' equity 160,000 Total liabilities and stockholders' $2,020,000 equity $ 120,000 530,000 380,000 620,000 280,000 170,000 $2,100,000 $ 310,000 1,500,000 290,000 $2,100,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income...
Problem 10-15 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 140,000 $ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 620,000 Investment in Buisson, S.A. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets $ 2,020,000 $ 2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 $ 310,000 Long-term debt 1,500,000...
Problem 10-15 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] Financial data for Joel de Paris, Inc., for last year, follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 140,000 $ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 620,000 Investment in Buisson, S.A. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets $ 2,020,000 $ 2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 $ 310,000 Long-term debt 1,500,000...
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 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 126,000 333,000 573,000 808,000 398,000 249,000 2,487,000 130,000 481,000 479,000 790,000 425,000 249,000 2,554,000 $ $ 385,000 1,006,000 1,096,000 $ 2,487,000 $ 336,000 1,006,000 1,212,000 $2,554,000 Joel...
Financial data for Joel de Paris, Inc., for last year follow: Doel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, 5.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders. equity Total liabilities and stockholders' equity 130,000 349,000 570,000 791,000 405,000 247,000 $ 2,492,000 $ 138,000 489,000 472,000 781,000 434 000 247,000 $2,561,000 388,000 1,948,000 1,056,000 $ 2,492,000 $ 338,000 1,948,000 1, 175,000...
Financial data for Joel de Paris, Inc., for last year follow: Ending Balance $ Joel de Paris, Inc. Balance Sheet Beginning Balance Assets Cash 131,000 Accounts receivable 341,000 Inventory 577,000 Plant and equipment, net 851,000 Investment in Buisson, S.A. 403,000 Land (undeveloped) 252,000 Total assets $ 2,555,000 Liabilities and Stockholders' Equity Accounts payable $ 381,000 Long-term debt 1,034,000 Stockholders' equity 1,140,000 Total liabilities and stockholders' equity $ 2,555,000 129,000 489,000 475,000 847,000 427,000 248,000 2,615,000 $ $ 335,000 1,034,000 1,246,000...
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 $...