Financial Data for Beaker Company for Last Year Appear Below

Financial data for Beaker Company for last year appear below:
Beaker Company
Statements of Financial Position

$\begin{array}{|l|r|r|}\hline & \text { Beginning Balance } & \text { Ending Balance } \\\hline \text { Assets: } & & \\\hline \text { Cash } & \$ 50,000 & \$ 70,000 \\\hline \text { Accounts receivable } & 20,000 & 25,000 \\\hline \text { Inventory } & 30,000 & 35,000 \\\hline \text { Plant and equipment (net) } & 120,000 & 110,000 \\\hline \text { Investment in Cedar Company } & 80,000 & 100,000 \\\hline \text { Land (underdeveloped) } & \underline{170,000} & \underline{170,000} \\\hline \text { Total assets } & \$ 470,000 & \$ 510,000 \\\hline & & \\\hline \text { Liabilities and owners' equity: } & & \\\hline \text { Accounts payable } & \$ 70,000 & \$ 90,000 \\\hline \text { Long-term deby } & 250,000 & 250,000 \\\hline \text { Owner's' equity } & \underline{150,000} & \underline{170,000} \\\hline \text { Total liabilities and owners' equity } & \$ 470,000 & \$ 510,000 \\\hline\end{array}$
Beaker Company
Income Statement

$\begin{array}{|l|r|r|}\hline \text { Sa;es } & & \$ 414,000 \\\hline \text { Less operating expenses } & & \underline{351,900} \\\hline \text { Net operating income } & & 62,100 \\\hline \text { Less interest and taxes: } & & \\\hline \text { Interest expense } & \$ 30,000 & \\\hline \text { Tax expense } & \underline{10,000} & \underline{40,000} \\\hline \text { Operating Income } & & \underline{\$ 22,100} \\\hline\end{array}$

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:
a)Compute the company's margin,turnover,and return on investment for last year.
b)The Board of Directors of Beaker Company have set a minimum required return of 20%.What was the company's residual income last year?

Correct Answer:

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a)Operating assets do not include invest...

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