ACCT 505 WEEK 6 QUIZ-2

ACCT 505 WEEK 6 QUIZ-2 Grade Details - All Questions 1. Question : (TCO D) A company that has a profit can increase its return on investment by Student Answer: increasing sales revenue and operating expenses by the same dollar amount. increasing average operating assets and operating expenses by the same dollar amount. increasing sales revenue and operating expenses by the same percentage. decreasing average operating assets and sales by the same percentage. Instructor Explanation: Chapter 12 Points Received: 5 of 5 Comments: 2. Question : (TCO D) Given the following data, what would ROI be? Sales $50,000 Net operating income $5,000 Contribution margin $20,000 Average operating assets $25,000 Stockholder's equity $15,000 Student Answer: 10% 20% 16.7% 80% Instructor Explanation: See Chapter 12. ROI = Net operating income / Average operating assets = $5,000 / $25,000 = 20.0% Points Received: 5 of 5 Comments: 3. Question : (TCO D) Given the following data: What is the return on investment (ROI)? Sales $150.000 Net operating income $15,000 Contribution margin $30,000 Average operating assets $50,000 Stockholder's equity $100,000 Student Answer: 10% 15% 60% 30% Instructor Explanation: ROI = Net operating income / Average operating assets = $15,000 / $50,000 = 30.0% Points Received: 5 of 5 Comments: 1. Question : (TCO D) Financial data for Beaker Company for last year appear below. Beaker Company Statement of Financial Position BeginningEnding Balance Balance Assets Cash $50,000 $70,000 Accounts receivable 20,000 25,000 Inventory 30,000 35,000 Plant and Equipment (net) 120,000 110,000 Investment in Cedar Company 80,000 100,000 Land (undeveloped) 170,000 170,000 Total Assets $470,000 510,000 Liabilities and Owners' Equity Accounts payable $70,000 $90,000 Long-term debt 250,000 250,000 Owner's equity 150,000 170,000 Total liabilities and owner's equity $470,000 $510,000 Beaker Company Income Statement Sales $414,000 Less Operating Expenses 351,900 Net Operating Income 62,100 Less Interest and Taxes Interest Expense $30,000 Tax Expense 10,000 40,000 Net Income $22,000 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: i. Compute the company's margin, turnover, and return on investment for last year. ii. The board of directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? Student Answer: Average operating assets = ($220,000+$240,000)/2 = $230,000 Margin = $62,100/$414,000 = 15% Turnover = $414,000/$230,000 = 1.8 ROI = 15%*1.8 = 27% Residual income last year: $62,100-$46,000 = $16,100 Instructor Explanation: Operating assets do not include investments in other companies or in undeveloped land. Average operating assets = ($220,000 + $240,000) / 2 = $230,000 Margin = Net operating income / Sales =