Question
In: Accounting
The following data has been provided for a company’s most recent year of operations: Return on...
The following data has been provided for a company’s most recent year of operations:
| Return on investment | 30 | % | |
| Average operating assets | $ | 75,000 | |
| Minimum required rate of return | 17 | % | |
The residual income for the year was closest to:
-
$9,750
-
$20,000
-
$15,750
-
$21,500
Solutions
Expert Solution
Answer: A - $9,750
Residual Income = Actual Net Income - Minimum required income
Actual Net Income = Average operating assets * Return on investment
= $75,000 * 30%
= $22,500
Minimum required income = Average operating assets * Minimum required rate of return
= $75,000 * 17%
= $12,750
Residual Income = Actual Net Income - Minimum required income
= $22,500 - $12,750
= $9,750
ekkarill92 answered 1 year agoRelated Solutions
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