Question

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 $2,561,000 Joel de Paris, Inc. Income Statement Sales $ 4,092,000 3,519, 120 572,880 Operating expenses Net operating income Interest and taxes: Interest expense Tax expense $ 115,000 194,000 309,000 263,880 Nedendome

Answer 1

Ans.	Assets	Beginning balance	Ending balance
	Cash	$130,000	$138,000
	Accounts receivables	$349,000	$489,000
	Inventory	$570,000	$472,000
	Plant and equipment	$791,000	$781,000
	Total operating assets	$1,840,000	$1,880,000
	*Undeveloped land and investment in other company are not included in operating assets.
Ans.1	Average operating assets = (Beginning operating assets + Ending operating assets) / 2
		($1,840,000 + $1,880,000) / 2
		$3,720,000 / 2
		$1,860,000
Ans.2 a	Margin =   Net operating income / Sales * 100
	$572,880 / $4,092,000 * 100
	14.00%
Ans.2 b	Turnover = Sales / Average operating assets
	$4,092,000 / $1,860,000
	2.20	times
Ans. 2 c	Return on investment (ROI) =   Turnover * Margin
	2.20 * 14%
	0.308 or 30.80%
Ans. 3	Residual income =   Operating income - Minimum required income
	$572,880 - $279,000
	$293,880
	*Minimum required income   =   Average operating assets * Desired rate of return
	$1,860,000 * 15%
	$279,000
	*Residual income is the difference between Net operating income and minimum required income, and the
	minimum required income is the product of average operating assets and desired rate of return.