Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash A
ID: 2469646 • Letter: J
Question
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) $ 135,000 $ 139,000 339,000 482,000 481,000 818,000 409,000 434,000 251,000 251,000 569,000 837,000 Total assets $2,540,000 $2,605,000 Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity $ 371,000 $ 339,000 1,038,000 1,038,000 1,131,000 1,228,000 Total liabilities and stockholders' equity $2,540,000 $2,605,000 Joel de Paris, Inc. Income Statement Sales Operating expenses $ 4,370,000 3,714,500 655,500 Net operating income Interest and taxes $ 127,000 Interest expense Tax expense 210,000 337,000 Net income $ 318,500Explanation / Answer
Solution:
1) Calculation of Margin, Turnover and Return on investment:
Operating assets do not include investments in other companies or in undeveloped land.
Average operating assets = (1,920,000 + 1,880,000)/ 2 = 1,900,000
Margin = Net Operating Income/ Sales
= 655,500/ 4,370,000
= 15%
Turnover = Sales/ Average operating assets
= 4,370,000/ 1,900,000
= 2.3
ROI = Margin * Turnover
= 15% * 2.3
= 34.50%
2) Calculation of Residual Income:
Ending Balances Beginning Balances Cash 139,000 135,000 Accounts Receivable 482,000 339,000 Inventory 481,000 569,000 Plant and equipment (net) 818,000 837,000 Total operating assets 1,920,000 1,880,000