Answered: Division Soap products Skin lotions…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year’s operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC’s balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA®), the increase in the balance sheet and the increase in after-tax operating income would be as given below:

Calculate EVA^® for each division.

Division
Soap products
Skin lotions
Hair products
Minimum desired rate of return
Cost of capital
Operating
Income
$ 3,242,000
2,742,000
4,992,000
5.00%
4.00%
Average Total
Assets
$ 59,992,000
32,992,000
54,992,000
Value of
Intangibles
$ 1,492,000
7,992,000
992,000
Intangibles'
Effect on
Income
$ 992,000
5,992,000
692,000

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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