Question

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	290,000		$	451,280
Accounts receivable		209,000			193,000
Inventory		282,000			232,000
Plant and equipment (net)		430,000			393,000
Investment in Cedar Company		304,000			255,000
Land (undeveloped)		241,000			241,000
Total assets	$	1,756,000		$	1,765,280
Liabilities and owners' equity:
Accounts payable	$	208,000		$	175,000
Long-term debt		824,000			824,000
Owners' equity		724,000			766,280
Total liabilities and owners' equity	$	1,756,000		$	1,765,280

Beaker Company
Income Statement
Sales				$	1,960,000
Less operating expenses					1,519,000
Net operating income					441,000
Less interest and taxes:
Interest expense	$	103,600
Tax expense		141,120			244,720
Net income				$	196,280

The company paid dividends of $154,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Additionally; The Board of Directors of Beaker Company has set a minimum required return of 30%.

Required:

Average Operating Assets (rounded to the nearest whole dollar, with commas)	$
Operating Income (rounded to the nearest whole dollar, with commas)	$
Sales (rounded to the nearest whole dollar with commas)	$
Margin (rounded to the 2 decimal places)	%
Turnover (rounded to 2 decimal places)
Return On Investment (rounded to 2 decimal places)	%
Residual Income (rounded to the nearest whole dollar, with commas)

Answer 1

Beginning operating assets = Cash + Accounts receivable + Inventory + Plant and equity (net)
Beginning operating assets = $290,000 + $209,000 + $282,000 + $430,000
Beginning operating assets = $1,211,000

Ending operating assets = Cash + Accounts receivable + Inventory + Plant and equity (net)
Ending operating assets = $451,280 + $193,000 + $232,000 + $393,000
Ending operating assets = $1,269,280

Average operating assets = (Beginning operating assets + Ending operating assets) / 2
Average operating assets = ($1,211,000 + $1,269,280) / 2
Average operating assets = $1,240,140

Operating income = $441,000
Sales = $1,960,000

Margin = Operating income / Sales
Margin = $441,000 / $1,960,000
Margin = 22.50%

Turnover = Sales / Average operating assets
Turnover = $1,960,000 / $1,240,140
Turnover = 1.58

Return on investment = Margin * Turnover
Return on investment = 22.50% * 1.58
Return on investment = 35.55%

Residual income = Operating income - Minimum required return * Average operating assets
Residual income = $441,000 - 0.30 * $1,240,140
Residual income = $68,958