FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Year 2016 2017 2018 2019 2020 2021 2022 Index 82 84 89 94 96 100 Cost $ 1,000,000 1,000,000 1,100,000 1,150,000 1,200,000 1,250,000 1,300,000 Health Care $ 800,000 800,000 600,000 600,000 700,000 700,000 600,000 Cosmetics $ 800,000 800,000 600,000 700,000 800,000 800,000 900,000 Required: (Round your answers to 2 decimal places.) 1. Compute return on investment (ROI) for each division using the historical cost of divisional assets (including current assets) as the investment base. 2. Compute ROI for each division, incorporating current-cost estimates as follows: a. Gross book value (GBV) of long-lived assets plus book value of current assets. b. GBV of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) c. Net book value (NBV) of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) d. Current replacement cost of long-lived assets plus book value of current assets. e. Current liquidation value of long-lived assets plus book value of current assets. 1. Return on investment based on historical cost of divisional assets 2a. Return on investment based on gross book value 2b Return on investment based on gross book value at current cost 2c. Return on investment based on net book value at current cost 2d. Return on investment based on current replacement cost 2e. Return on investment based on current liquidation value Health Care % % % % % % Cosmetics % % % % % %
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Transcribed Image Text:Year 2016 2017 2018 2019 2020 2021 2022 Index 82 84 89 94 96 100 Cost $ 1,000,000 1,000,000 1,100,000 1,150,000 1,200,000 1,250,000 1,300,000 Health Care $ 800,000 800,000 600,000 600,000 700,000 700,000 600,000 Cosmetics $ 800,000 800,000 600,000 700,000 800,000 800,000 900,000 Required: (Round your answers to 2 decimal places.) 1. Compute return on investment (ROI) for each division using the historical cost of divisional assets (including current assets) as the investment base. 2. Compute ROI for each division, incorporating current-cost estimates as follows: a. Gross book value (GBV) of long-lived assets plus book value of current assets. b. GBV of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) c. Net book value (NBV) of long-lived assets restated to current cost using the index of construction costs plus book value of current assets. (Do not round intermediate calculations. Round dollar values to the nearest whole dollar.) d. Current replacement cost of long-lived assets plus book value of current assets. e. Current liquidation value of long-lived assets plus book value of current assets. 1. Return on investment based on historical cost of divisional assets 2a. Return on investment based on gross book value 2b Return on investment based on gross book value at current cost 2c. Return on investment based on net book value at current cost 2d. Return on investment based on current replacement cost 2e. Return on investment based on current liquidation value Health Care % % % % % % Cosmetics % % % % % %
Ready Products Incorporated operates two divisions, each with its own manufacturing facility. The accounting system reports the following data for 2022: HEALTH CARE PRODUCTS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income $ 1,200 770 $ 430 COSMETICS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income $ 960 460 $ 500 Ready estimates the useful life of each manufacturing facility to be 21 years. As of the end of 2022, the plant for the health care division is 4 years old, while the manufacturing plant for the cosmetics division is 6 years old. Each plant had the same cost at the time of purchase, and both have useful lives of 21 years with no salvage value. The company uses straight-line depreciation and the depreciation charge is $70,000 per year for each division. The manufacturing facility is the only long-lived asset of either division. Current assets are $312,000 in each division. An index of construction costs, replacement costs, and liquidation values for the manufacturing facilities for the period that Ready has been operating is as follows:
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Transcribed Image Text:Ready Products Incorporated operates two divisions, each with its own manufacturing facility. The accounting system reports the following data for 2022: HEALTH CARE PRODUCTS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income $ 1,200 770 $ 430 COSMETICS DIVISION Income Statement For the Year Ended December 31, 2022 Revenues Operating costs Operating income $ 960 460 $ 500 Ready estimates the useful life of each manufacturing facility to be 21 years. As of the end of 2022, the plant for the health care division is 4 years old, while the manufacturing plant for the cosmetics division is 6 years old. Each plant had the same cost at the time of purchase, and both have useful lives of 21 years with no salvage value. The company uses straight-line depreciation and the depreciation charge is $70,000 per year for each division. The manufacturing facility is the only long-lived asset of either division. Current assets are $312,000 in each division. An index of construction costs, replacement costs, and liquidation values for the manufacturing facilities for the period that Ready has been operating is as follows:
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Step 1: Ratio analysis:
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Step 2: (1) Calculate Return on investment based on historical cost of divisional assets:
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Step 3: (2) Compute ROI for each division, incorporating current-cost estimates:
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