1. | Question : | (TCO D) Financial data for Beaker Company for last year appear below.
Beaker Company | Statement of Financial Position |
|
| | | Beginning | Ending |
| Balance | Balance | Assets |
|
| Cash | $50,000 | $70,000 | Accounts receivable | 20,000 | 25,000 | Inventory | 30,000 | 35,000 | Plant and Equipment (net) | 120,000 | 110,000 | Investment in Cedar Company | 80,000 | 100,000 | Land (undeveloped) | 170,000 | 170,000 | Total Assets | $470,000 | 510,000 |
|
| | Liabilities and Owners' Equity |
|
| Accounts payable | $70,000 | $90,000 | Long-term debt | 250,000 | 250,000 | Owner's equity | 150,000 | 170,000 | Total liabilities and owner's equity | $470,000 | $510,000 |
Beaker Company | Income Statement |
|
| | Sales |
| $414,000 | Less Operating Expenses |
| 351,900 | Net Operating Income |
| 62,100 | Less Interest and Taxes |
|
| Interest Expense | $30,000 |
| Tax Expense | 10,000 | 40,000 | Net Income |
| $22,000 |
The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.
Required:
I. Compute the company's margin, turnover, and return on investment for last year.
ii. The board of directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? |
