Financial data for Beaker Company for last year appear below.
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Beaker Company |
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Beginning |
Ending |
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Balance |
Balance |
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Assets |
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Cash |
$50,000 |
$70,000 |
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Accounts receivable |
20,000 |
25,000 |
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Inventory |
30,000 |
35,000 |
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Plant and Equipment (net) |
120,000 |
110,000 |
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Investment in Cedar Company |
80,000 |
100,000 |
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Land (undeveloped) |
170,000 |
170,000 |
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Total Assets |
$470,000 |
510,000 |
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Liabilities and Owners’ Equity |
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Accounts payable |
$70,000 |
$90,000 |
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Long-term debt |
250,000 |
250,000 |
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Owner’s equity |
150,000 |
170,000 |
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Total liabilities and owner’s equity |
$470,000 |
$510,000 |
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Beaker Company |
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Income Statement |
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Sales |
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$414,000 |
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Less Operating Expenses |
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351,900 |
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Net Operating Income |
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62,100 |
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Less Interest and Taxes |
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Interest Expense |
$30,000 |
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Tax Expense |
10,000 |
40,000 |
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Net Income |
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$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?
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