Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 15, Problem 23P
Problem 9-21A Comparing
Helena Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division:
| BOWMAN DIVISION Income Statement For the Year Ended December 31, 2018 |
|
| Sales revenue | $138,000 |
| Cost of goods sold | 78,000 |
| Gross margin | 60,000 |
| Operating expenses | |
| Selling expenses | (6,000) |
| Depreciation expense | (8,000) |
| Operating income | 46,000 |
| Nonoperating item | |
| Loss on sale of land | (16,000) |
| Net income | $ 30,000 |
| BOWMAN DIVISION Balance Sheet As of December 31, 2018 |
|
| Assets | |
| Cash | $ 18,898 |
| |
42,266 |
| Merchandise inventory | 37,578 |
| Equipment less accum. dep. | 90,258 |
| Nonoperating assets | 9,000 |
| Total assets | $198,000 |
| Liabilities | |
| Accounts payable | $ 9,637 |
| Notes payable | 72,000 |
| Stockholders’ equity | |
| Common stock | 80,000 |
| |
36,363 |
| Total liab. and stk. equity | $198,000 |
Required
- a. Which should be used to determine the
rate of return (ROI) for the Bowman investment center, operating income or net income? Explain your answer. - b. Which should be used to determine the ROI for the Bowman investment center, operating assets or total assets? Explain your answer.
- c. Calculate the ROI for Bowman. Round the computation to two decimal points.
- d. Cole has a desired ROI of 10 percent. Headquarters has $96,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 12 percent. The other two divisions have investment opportunities that yield only 11 percent. Even so, the manager of Bowman rejects the additional funding. Explain why the manager of Bowman would reject the funds under these circumstances. Round the computation to two decimal points.
- e. Explain how residual income could be used to encourage the manager to accept the additional funds. Round the computation to whole dollars.
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Chapter 15 Solutions
Survey Of Accounting
Ch. 15 - 1. Pam Kelly says she has no faith in budgets. Her...Ch. 15 - 7. What is a responsibility center?Ch. 15 - Prob. 3QCh. 15 - Prob. 4QCh. 15 - Prob. 5QCh. 15 - 3. When are sales and cost variances favorable and...Ch. 15 - 4. Joan Mason, the marketing manager for a large...Ch. 15 - Prob. 8QCh. 15 - Prob. 9QCh. 15 - Prob. 10Q
Ch. 15 - Prob. 11QCh. 15 - 9. Minnie Divers, the manager of the marketing...Ch. 15 - 6. How do responsibility reports promote the...Ch. 15 - Prob. 14QCh. 15 - Prob. 15QCh. 15 - Prob. 16QCh. 15 - 12. How can a residual income approach to...Ch. 15 - Prob. 18QCh. 15 - Exercise 9-6A Evaluating a profit center Helen...Ch. 15 - Prob. 2ECh. 15 - Prob. 3ECh. 15 - Prob. 4ECh. 15 - Exercise 8-3A Determining amount and type...Ch. 15 - Prob. 6ECh. 15 - Exercise 8-4A Determining sales and variable cost...Ch. 15 - Exercise 8-5A Determining flexible budget...Ch. 15 - Exercise 8-9A Responsibility for the fixed cost...Ch. 15 - Prob. 10ECh. 15 - Exercise 8-7A Evaluating a decision to increase...Ch. 15 - Prob. 12ECh. 15 - Prob. 13ECh. 15 - Exercise 9-9A Residual income Climax Corporation...Ch. 15 - Residual income Gletchen Cough Drops operates two...Ch. 15 - Prob. 16ECh. 15 - Prob. 17ECh. 15 - Prob. 18PCh. 15 - Prob. 19PCh. 15 - Prob. 20PCh. 15 - Prob. 21PCh. 15 - Problem 9-20A Return on investment Sorrento...Ch. 15 - Problem 9-21A Comparing return on investment and...Ch. 15 - Comparing return on investment and residual income...Ch. 15 - ATC 8-1 Business Applications Case Static versus...Ch. 15 - Prob. 2ATCCh. 15 - Prob. 3ATCCh. 15 - ATC 9-1 Business Applications Case Analyzing...Ch. 15 - Prob. 5ATC
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