Financial data for Redstone Company for last year appear below:
Redstone Company
Statements of Financial Position
|
Assets:
|
Beginning
Balance
|
Ending
Balance
|
|
Cash..............................................................
|
$120,000
|
$160,000
|
|
Accounts receivable.................................
|
110,000
|
100,000
|
|
Inventory.......................................................
|
50,000
|
60,000
|
|
Plant and equipment (net).......................
|
180,000
|
160,000
|
|
Investment in Balsam Company...........
|
50,000
|
60,000
|
|
Land (undeveloped).................................
|
120,000
|
120,000
|
|
Total assets.................................................
|
$630.000
|
$660 000
|
|
Liabilities and owners' equity:
|
|
|
|
Accounts payable....................................
|
$ 70,000
|
$ 90,000
|
|
Long-term debt..........................................
|
500,000
|
500,000
|
|
Owners' equity...........................................
|
60.000
|
70.000
|
|
Total liabilities and owners' equity........
|
$630.000
|
$660.000
|
Redstone Company
Income Statement
|
Sales............................................
|
|
$1,222,000
|
|
Less operating expenses......
|
|
1,099,800
|
|
Net operating income..............
|
|
122,200
|
|
Less interest and taxes:
|
|
|
|
Interest expense....................
|
$60,000
|
|
|
Tax expense...........................
|
20,000
|
80,000
|
|
Net income.................................
|
|
$ 42.200
|
The company paid dividends of $32,200 last year. The "Investment in Balsam Company" on the statement of financial position represents an investment in the stock of another company.
Required:
a. Compute the company's margin, turnover, and return on investment for last year.
b. The Board of Directors of Redstone has set a minimum required return of 25%. What was the company's residual income last year?