Question
In: Accounting
Determining missing items in return and residual income computations Data for Uberto Company are presented in...
Determining missing items in return and residual income computations
Data for Uberto Company are presented in the following table of rates of return on investment and residual incomes:
Invested Assets |
Income from Operations |
Return on Investment |
Minimum Return | Minimum Acceptable Income from Operations | Residual Income |
||||||
| $960,000 | $230,400 | (a) | 13% | (b) | (c) | ||||||
| $580,000 | (d) | (e) | (f) | $63,800 | $29,000 | ||||||
| $290,000 | (g) | 14% | (h) | $29,000 | (i) | ||||||
| $220,000 | $46,200 | (j) | 12% | (k) | (l) | ||||||
Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.
| a. | % | ||||||||
| b. | $ | ||||||||
| c. | $ | ||||||||
| d. | $ | ||||||||
| e. | % | ||||||||
| f. | % | ||||||||
| g. | $ | ||||||||
| h. | % | ||||||||
| i. | $ | ||||||||
| j. | % | ||||||||
| k. | $ | ||||||||
| l. | $ | ||||||||
Solutions
Expert Solution
| a) Rate of Return on Investments = Income from Operations / Invested Assets = $230,400/$960,000 = 24% |
| (b) Minimum acceptable Income from Operations = Invested Assets * Minimum rate of Return = $960,000 * 13% = $124800 |
| (c) Residual Income = Income from Operations - Minimum acceptable Income from Operations = $230400 - $124,800 = $105,600 |
| (d) Income from Operations = Minimum acceptable Income from Operations + Residual Income = $63,800 + $29,000 = $92800 |
| (e) Rate of Return on Investments = Income from Operations (calculated in (d) above) / Invested Assets = $92800 / $580,000 = 16% |
| (f) Minimum rate of Return = Minimum acceptable Income from Operations / Invested Assets = $63,800 / $580,000 = 11% |
| (g) Income from Operations = Invested Assets * Rate of Return on Investments = $290,000*14% = $40,600 |
| (h) Minimum rate of Return = Minimum acceptable Income from Operations / Invested Assets = $29,000 / $290,000 = 10% |
| (i) Residual Income = Income from Operations - Minimum acceptable Income from Operations = $40600 - $29000 = $11600 |
| (j) Rate of Return on Investments = Income from Operations / Invested Assets = $46,200 / $220,000 = 21% |
| (k) Minimum acceptable Income from Operations = Invested Assets * Minimum rate of Return = $220,000 * 12% = $26,400 |
| (l) Residual Income = Income from Operations - Minimum acceptable Income from Operations = $46,200 - $26,400 = $19,800 |
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