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Financial data for Hunger Games Company for last year appear below:
| Hunger Games Company |
| Statements of Financial Position |
| | Beginning Balance | Ending Balance |
| Assets: | | |
| Cash | $120,700 | $220,000 |
| Accounts receivable | 225,000 | 475,000 |
| Inventory | 317,000 | 390,000 |
| Plant and equipment (net) | 940,000 | 860,000 |
| Investment in Katniss Company | 100,000 | 98,000 |
| Land (undeveloped) | 198,000 | 65,000 |
| Total assets | $1,900,700 | $2,108,000 |
| Liabilities and owners' equity: | | |
| Accounts payable | $178,700 | $8,000 |
| Long-term debt | 512,000 | 600,000 |
| Owners' equity | 1,210,000 | 1,500,000 |
| Total liabilities and owners' equity | $1,900,700 | $2,108,000 |
| Hunger Games Company |
| Income Statement |
| Sales | | $4,500,000 |
| Less operating expenses | | 4,000,000 |
| Net operating income | | 500,000 |
| Less interest and taxes: | | |
| Interest expense | $97,000 | |
| Tax expense | 127,000 | 224,000 |
| Operating Income | | $276,000 |
The "Investment in Katniss Company" on the statement of financial position represents an investment in the stock of another company. Required:
1. Compute the company's margin, turnover, and return on investment for last year.
2. The Board of Directors of Hunger Games Company have set a minimum required return of 15%. What was the company's residual income last year?
Answer & Explanation
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