Ready Products Incorporated operates two divisions, each with its own manufacturing facility. The accounting system reports the following data for 2022: HEALTH CARE PRODUCTS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income COSMETICS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income Ready estimates the useful life of each manufacturing facility to be 21 years. As of the end of 2022, the plant for the health care division is 4 years old, while the manufacturing plant for the cosmetics division is 6 years old. Each plant had the same cost at the time of purchase, and both have useful lives of 21 years with no salvage value. The company uses straight-line depreciation and the depreciation charge is $122,000 per year for each division. The manufacturing facility is the only long-lived asset of either division. Current assets are $338,000 in each division. Year Cost Index Replacement Cost 2016 2017 2018 2019 2020 2021 2022 $ 2,500 1,420 $ 1,080 An index of construction costs, replacement costs, and liquidation values for the manufacturing facilities for the period that Ready has been operating is as follows: 80 82 84 89 94 96 100 $ 1,740 850 $ 890 $ 1,000,000 1,000,000 1,100,000 1,150,000 1,200,000 1,250,000 1,300,000 Liquidation Value Cosmetics $ 600,000 600,000 500,000 600,000 Health Care $ 600,000 600,000 500,000 500,000 600,000 600,000 500,000 700,000 700,000 800,000 quired: Dund your answers to 2 decimal places.) Compute return on investment (ROI) for each division using the historical cost of divisional assets (including current assets) as the estment base. Compute ROI for each division, incorporating current-cost estimates as follows: Gross book value (GBV) of long-lived assets plus book value of current assets. GBV of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not und intermediate calculations. Round dollar values to the nearest whole dollar.) Net book value (NBV) of long-lived assets restated to current cost using the index of construction costs plus book value of current sets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) Current replacement cost of long-lived assets plus book value of current assets. Current liquidation value of long-lived assets plus book value of current assets. Return on investment based on historical cost of divisional assets Return on investment based on gross book value Return on investment based on gross book value at current cost Return on investment based on net book value at current cost 1. Return on investment based on current replacement cost Return on investment based on current liquidation value Health Care % % % % % % Cosmetics % % % % % %

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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Ready Products Incorporated operates two divisions, each with its own manufacturing facility. The accounting system reports the
following data for 2022:
HEALTH CARE PRODUCTS DIVISION
Income Statement
For the Year Ended December 31, 2022
Revenues
Operating costs
Operating income
Revenues
Operating costs
Operating income
COSMETICS DIVISION
Income Statement
For the Year Ended December 31, 2022
2018
2019
2020
2021
2022
Ready estimates the useful life of each manufacturing facility to be 21 years. As of the end of 2022, the plant for the health care
division is 4 years old, while the manufacturing plant for the cosmetics division is 6 years old. Each plant had the same cost at the time
of purchase, and both have useful lives of 21 years with no salvage value. The company uses straight-line depreciation and the
depreciation charge is $122,000 per year for each division. The manufacturing facility is the only long-lived asset of either division.
Current assets are $338,000 in each division.
Year Cost Index Replacement Cost
2016
2017
$2,500
1,420
$ 1,080
An index of construction costs, replacement costs, and liquidation values for the manufacturing facilities for the period that Ready has
been operating is as follows:
80
82
84
89
94
96
100
$ 1,740
850
$890
$ 1,000,000
1,000,000
1,100,000
1,150,000
1,200,000
1,250,000
1,300,000
Liquidation Value
Cosmetics
$ 600,000
600,000
500,000
600,000
700,000
700,000
800,000
Health Care
$ 600,000
600,000
500,000
500,000
600,000
600,000
500,000
Required:
(Round your answers to 2 decimal places.)
1. Compute return on investment (ROI) for each division using the historical cost of divisional assets (including current assets) as the
investment base.
2. Compute ROI for each division, incorporating current-cost estimates as follows:
a. Gross book value (GBV) of long-lived assets plus book value of current assets.
b. GBV of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not
round intermediate calculations. Round dollar values to the nearest whole dollar.)
c. Net book value (NBV) of long-lived assets restated to current cost using the index of construction costs plus book value of current
assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.)
d. Current replacement cost of long-lived assets plus book value of current assets.
e. Current liquidation value of long-lived assets plus book value of current assets.
1.
Return on investment based on historical cost of divisional assets
2a. Return on investment based on gross book value
2b
Return on investment based on gross book value at current cost
2c. Return on investment based on net book value at current cost
2d. Return on investment based on current replacement cost
2e. Return on investment based on current liquidation value
Health Care
%
%
%
%
%
%
Cosmetics
%
%
%
%
%
%
Transcribed Image Text:Ready Products Incorporated operates two divisions, each with its own manufacturing facility. The accounting system reports the following data for 2022: HEALTH CARE PRODUCTS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income Revenues Operating costs Operating income COSMETICS DIVISION Income Statement For the Year Ended December 31, 2022 2018 2019 2020 2021 2022 Ready estimates the useful life of each manufacturing facility to be 21 years. As of the end of 2022, the plant for the health care division is 4 years old, while the manufacturing plant for the cosmetics division is 6 years old. Each plant had the same cost at the time of purchase, and both have useful lives of 21 years with no salvage value. The company uses straight-line depreciation and the depreciation charge is $122,000 per year for each division. The manufacturing facility is the only long-lived asset of either division. Current assets are $338,000 in each division. Year Cost Index Replacement Cost 2016 2017 $2,500 1,420 $ 1,080 An index of construction costs, replacement costs, and liquidation values for the manufacturing facilities for the period that Ready has been operating is as follows: 80 82 84 89 94 96 100 $ 1,740 850 $890 $ 1,000,000 1,000,000 1,100,000 1,150,000 1,200,000 1,250,000 1,300,000 Liquidation Value Cosmetics $ 600,000 600,000 500,000 600,000 700,000 700,000 800,000 Health Care $ 600,000 600,000 500,000 500,000 600,000 600,000 500,000 Required: (Round your answers to 2 decimal places.) 1. Compute return on investment (ROI) for each division using the historical cost of divisional assets (including current assets) as the investment base. 2. Compute ROI for each division, incorporating current-cost estimates as follows: a. Gross book value (GBV) of long-lived assets plus book value of current assets. b. GBV of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) c. Net book value (NBV) of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) d. Current replacement cost of long-lived assets plus book value of current assets. e. Current liquidation value of long-lived assets plus book value of current assets. 1. Return on investment based on historical cost of divisional assets 2a. Return on investment based on gross book value 2b Return on investment based on gross book value at current cost 2c. Return on investment based on net book value at current cost 2d. Return on investment based on current replacement cost 2e. Return on investment based on current liquidation value Health Care % % % % % % Cosmetics % % % % % %
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