Question

Question 2 Mark out of 25 Financial data for Beaker Company for last year appears below Beaker Company Beaker Company Statement of Financial Position Income Statement Beginning Ending Balance Balance Sales 414,000 Assets: 351,900 62,100 50,000 Cash 70,000 Less operating expenses Net operating income Accounts Receivable 20,000 25,000 Inventory Plant and Equipment 30,000 35,000 Less interest and taxes: 120,000 110,000 Investments 80,000 100,000 Interest expenses Тах еxpense 30,000 10,000 Land(undeveloped) 40,000 170,000 170,000 470,000 510,000 Operating Income 22,100 Total Assets Liabilities and Owners' Equity: Accounts Payable Long Term Debt |Owners' Equity Total Liabilities and Owner's Equity 70,000 90,000 250,000 250,000 150,000 170,000 470,000 510,000 | The company paid dividends of $2,100 last year. The "Investments" on the statement of financial position represents an investment in the stock of another company Required: (a) Compute the company's margin, turnover, and return on investment for last year The Board of Directors of Beaker Company have set a minimum required retum of 20%. What was the company's residual income last year? (Ф)

Answer 1

Operating assets is sum of cash, accounts receivable, inventory and plant and equipment Cash Accounts Receivable Inventory Plant and Equipment(net) Total Operating Assets Beginning Balance $50,000 $20,000 $30,000 $120,000 $220,000 Ending Balance $70,000 $25,000 $35,000 $110,000 $240,000 Average operating assets = ($220,000 + $240,000)/2 = $230,000 Margin= (Net Operating Income / Sales) x 100 = ($62,100 / $414,000) x 100 = 15% Turnover = Sales / Average operating assets = $414,000 / $230,000 = 1.8 Return on investment= Margin x Turnover = 15% x 1.8 = 27% Average operating assets) b) Residual income = Net operating income-(20% =$62,100 - (230,000 x 20%) = $16,100