Problem 12–18 (20 minutes)
1. Operating assets do not include investments in other companies or in
undeveloped land.
Ending
Balances
Beginning
Balances
Cash …………………………………
$ 130,000
$ 125,000
Accounts receivable ……………..
480,000
340,000
Inventory …………………………..
490,000
570,000
Plant and equipment (net) …….
820,000
845,000
Total operating assets …………..
$1,920,000
$1,880,000
$1,880,000 + $1,920,000
Average operating assets = = $1,900,000
2
Net operating income
Margin = Sales
$627,000
= = 15%
$4,180,000
Sales
Turnover = Average operating assets
$4,180,000
= = 2.2
$1,900,000
ROI = Margin × Turnover
= 15% × 2.2 = 33%
2.
Net operating income ……..…………………………..
$627,000
Minimum required return (20% × $1,900,000) ….
380,000
Residual income …………………………………………
$247,000
