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?

Here, we are going to prepare and solve the requirement using the information in the question.

1.Particulars                                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

Average operating assets = [Beginning total operating assets + Ending total operating assets ] / 2

Average operating assets = [$1,590,000 + $1,650,000] / 2

Average operating assets = $1,620,000

2. Margin = Net operating income / Sales

Margin = $405,000 / $4,050,000

Margin = 0.10

Margin = 10%

Turnover = Sales / Average operating assets

Turnover = $4,050,000 / $1,620,000

Turnover = 2.5

Return on investment (ROI) = Net operating income / Average operating assets

Return on investment (ROI) = $405,000 / $1,620,000

Return on investment (ROI) = 0.25

Return on investment (ROI)= 25%

3. Residual income = Net operating income - (Average operating assets * Minimum required rate of return)

Residual income = $405,000 - ($1,620,000 * 15%)

Residual income = $405,000 - $243,000

Residual income = $162,000

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Explanation:

The  computation is shown below:

1. Average operating assets is

= (Opening operating assets + closing operating assets) ÷ 2

where,

Opening operating assets is

= Total assets -  Land (undeveloped) - Investment in Buisson, S.A

=$2,020,000 - $180,000 - $250,000

= $1,590,000

And, the closing operating assets is

= Total assets -  Land (undeveloped) - Investment in Buisson, S.A

= $2,100,000 - $170,000 - $280,000

= $1,650,000

So, average operating assets is

= ($1,590,000 + $1,650,000) ÷ 2

= $1,620,000

2.

Margin = Net operating income ÷ Sales

= $405,000 ÷ $4,050,000

= 0.1 or 10%

Turnover is

= Sales ÷ Average operating assets

= $4,050,000 ÷ $1,620,000

= 2.5

Return on Investment = Margin ×Turnover

= 0.1 × 2.5

= 0.25 or 25%

3.  Residual Income = Net operating Income - (Average operating assets × Minimum required rate of return)

= $405,000 - ($1,620,000 × 15%)

= $405,000 - $243000

= $162,000

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