Financial data for Redstone Company for last year appear

Financial data for Redstone Company for last year appear

1. Financial data for Redstone Company for last year appear below:
Redstone Company
Statements of Financial Position
Beginning
Ending
Balance
Balance
Assets:
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?

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