Question

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
$870,000		$191,400		(a)		12%		(b)		(c)
$480,000		(d)		(e)		(f)		$57,600		$19,200
$320,000		(g)		14%		(h)		$35,200		(i)
$240,000		$48,000		(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.	$

Answer 1

Answer-a)- Return on investments = (Income from operations/Invested Assets)*100

= (191400/$870000)*100

= 22%

b)- Minimum acceptable income from operations = Invested assets*Minimum rate of return

= $870000*12%

= $104400

c)- Residual income = Income from operations - Minimum acceptable income from operations

= $191400 - $104400

= $87000

d)- Income from operations = Minimum acceptable income from operations+ Residual income

= $57600+$19200

= $76800

e)- Return on investments = (Income from operations/Invested Assets)*100

= ($76800/$480000)*100

= 16%

f)- Minimum rate of return = (Minimum acceptable income from operations/Invested Assets)*100

= ($57600/$480000)*100

= 12%

g)- Income from operations= Invested assets* Return on investments

= $320000*14%

= $44800

h)- Minimum rate of return = (Minimum acceptable income from operations/Invested Assets)*100

= ($35200/$320000)*100

= 11%

i)- Residual income = Income from operations - Minimum acceptable income from operations

= $44800 - $35200

= $9600

j)- Return on investments = (Income from operations/Invested Assets)*100

= ($48000/$240000)*100

= 20%

k)- Minimum acceptable income from operations = Invested assets*Minimum rate of return

= $240000*12%

= $28800

l)- Residual income = Income from operations - Minimum acceptable income from operations

= $48000 - $28800

= $19200