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Homework answers / question archive / Financial data for Joel de Paris, Inc

Financial data for Joel de Paris, Inc

Accounting

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 $ 2,020,000   $ 2,100,000  
 

 

Joel de Paris, Inc.
Income Statement
 
Sales         $ 4,050,000  
Operating expenses           3,645,000  
Net operating income           405,000  
Interest and taxes:              
Interest expense $ 150,000          
Tax expense   110,000       260,000  
Net income         $ 145,000  
   


The company paid dividends of $15,000 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 "Turnover" to 1 decimal place.)

3. What was the company’s residual income last year?

 
 
       
1. Average operating assets    
2. Margin   %
  Turnover    
  ROI   %
3. Residual income

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1.

  Beginning balance Ending balance
Cash $140,000 $120,000
Accounts receivables $450,000 $530,000
Inventory $320,000 $380,000
Plant and equipment, net $680,000 $620,000
Total operating assets $1,590,000 $1,650,000

In the given question, Investment in Buisson, S.A. and Land ( Undeveloped ) are not an operating asset, because they do not contribute anything in the main operating activities of the company.

Average operating assets = [ Beginning total operating assets + Ending total operating assets ] / 2 = [ $1,590,000 + $1,650,000 ] / 2 = $1,620,000

2. Margin = Net operating income / Sales = $405,000 / $4,050,000 = 10%

Turnover = Sales / Average operating assets = $4,050,000 / $1,620,000 = 2.5

Return on investment ( ROI ) = Net operating income / Average operating assets = $405,000 / $1,620,000 = 25%

3. Residual income = Net operating income - ( Average operating assets * Minimum required rate of return ) = $405,000 - ( $1,620,000 * 15% ) = $162,000