Question 8.4 Financial data for Snape Company for last year appears below: Snape Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash $58,000 $78,000 Accounts receivable 28,000 27,000 Inventory 36,000 40,000 Plant and equipment (net) 123,000 113,000 Investment in Potter Company 82,000 102,000 Land (underdeveloped) 170,000 170,000 Total assets $497,000 $530,000 Liabilities and owners' equity: Accounts payable $57,000 $70,000 Long-term debt 270,000 270,000 Owners' equity 170,000 190,000 Total liabilities and owners' equity $497,000 $530,000 Snape Company Income Statement Sales $413,000 Less operating expenses 352,000 Net operating income 61,000 Less interest and taxes: Interest expense $30,000 Tax expense 13,000 43,000 Operating Income $18,000 The company paid dividends of $2,000 last year. The "Investment in Potter Company" on the statement of financial position represents an investment in the stock of another company. Required: Compute the company's margin, turnover, and return on investment for last year. The Board of Directors of Snape Company have set a minimum required return of 20%. What was the company's residual income last year?
Question 8.4
Financial data for Snape Company for last year appears below:
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Snape Company |
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Statements of Financial Position |
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Beginning Balance |
Ending Balance |
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Assets: |
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Cash |
$58,000 |
$78,000 |
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28,000 |
27,000 |
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Inventory |
36,000 |
40,000 |
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Plant and equipment (net) |
123,000 |
113,000 |
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Investment in Potter Company |
82,000 |
102,000 |
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Land (underdeveloped) |
170,000 |
170,000 |
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Total assets |
$497,000 |
$530,000 |
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Liabilities and owners' equity: |
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Accounts payable |
$57,000 |
$70,000 |
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Long-term debt |
270,000 |
270,000 |
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Owners' equity |
170,000 |
190,000 |
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Total liabilities and owners' equity |
$497,000 |
$530,000 |
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Snape Company |
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Income Statement |
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Sales |
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$413,000 |
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Less operating expenses |
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352,000 |
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Net operating income |
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61,000 |
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Less interest and taxes: |
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Interest expense |
$30,000 |
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Tax expense |
13,000 |
43,000 |
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Operating Income |
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$18,000 |
The company paid dividends of $2,000 last year. The "Investment in Potter Company" on the
Required:
- Compute the company's margin, turnover, and
return on investment for last year. - The Board of Directors of Snape Company have set a minimum required return of 20%. What was the company's residual income last year?
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