Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $

ID: 2406488 • Letter: J

Question

Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 133,000 $ 129,000 Accounts receivable 331,000 475,000 Inventory 565,000 485,000 Plant and equipment, net 891,000 871,000 Investment in Buisson, S.A. 404,000 430,000 Land (undeveloped) 252,000 251,000 Total assets $ 2,576,000 $ 2,641,000 Liabilities and Stockholders' Equity Accounts payable $ 374,000 $ 337,000 Long-term debt 1,025,000 1,025,000 Stockholders' equity 1,177,000 1,279,000 Total liabilities and stockholders' equity $ 2,576,000 $ 2,641,000 Joel de Paris, Inc. Income Statement Sales $ 5,238,000 Operating expenses 4,557,060 Net operating income 680,940 Interest and taxes: Interest expense $ 120,000 Tax expense 206,000 326,000 Net income $ 354,940 The company paid dividends of $252,940 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. Required: 1. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your Turnover answer to 1 decimal place. Round your Margin and ROI percentage answers to 1 decimal place (i.e 0.123 should be entered as 12.3.)) 2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 15%. What was the company’s residual income last year?

Explanation / Answer

Requirement – 1, company’s margin, turnover, and return on investment (ROI) for last year

Beginning Balances

Ending Balances

Cash

133,000

129,000

Accounts receivable

331,000

475,000

Inventory

565,000

485,000

Plant and equipment (net)

891,000

871,000

Total operating assets

19,20,000

19,60,000

Average operating assets = ($19,20,000 + 19,60,000) / 2

= 19,40,000

Company’s Margin = [ Net operating income / Sales ] x 100

= [ $680,940 / 52,38,000 ] x 100

= 13%

Company’s Turnover =Sales / Average operating assets

= $52,38,000 / 19,40,000

= 2.70

Company’s ROI = Margin × Turnover

= 13% x 2.70

= 35.1%

Requirement – 2, Company’s residual income last year

Net operating income

$680,940

Less : Minimum required return

($19,40,000 x 15%)

291,000

Residual income

$389,940